Public cos. to report pay gap between CEOs, employees

The final rule now requires public companies to disclose the pay ratio between the company’s CEO and its average employee.

The rule, approved Wedensday, stems from the 2010 Dodd-Frank overhaul of financial regulation.

Out of the top 10 CEOs, four of the executives were from technology companies, with the highest pay going to one of the newest CEOs on the list: Microsoft’s Satya Nadella, who was only named to the position in February of 2014. The ratio, for instance, could provide a benchmark for comparing the pay of chief executives at companies in similar industries. Republicans in Congress and companies have vigorously opposed the rule, saying that it would be costly to get all the data together. The final SEC rule does allow issuers to exclude up to 5 percent of its non-US employees, a total that must also include any employees exempted due to that country’s privacy laws, which is an unreasonably small number for manufacturers who may have more than 50% of their employees in non-U.S. locations.

In May, shareholders in banking giant JP Morgan were urged to vote against chief executive Jamie Dimon’s $20m pay package.

In particular, the rule allows companies to select its own methodology for calculating the ratio.

Starting from 2017, the annual financial reports of companies should also have a report mentioning the ratio between their CEO’s salary and it’s average employee pay.

At the very least, the new rule created by the Securities and Exchange Commission will be another hoop publicly traded companies must jump through. He said the only way he could vote in favor of disclosing pay ratio is if it was limited to full-time employees in the US.

Calling it “one of the most controversial rules” to arise out of the sweeping Dodd-Frank reform following the financial crisis, the rule’s approving members, including SEC chair Mary Jo White, called it a thoughtful and reasonable measure that would help investors and workers better understand how companies reward both sides of their workforce.

Whereas CEOs at America’s largest companies made 20 times what their workers earned in 1965, by 2014 the CEO-to-worker compensation ratio had shot up to 303.4. The new SEC rule does nothing to encourage balance in pay, other than shine a light on the disparity; the rest is up to the public – and many didn’t want you to have that power. “The public relies on the SEC to act as the cop on the beat for an honest marketplace-issuing rules that ensure that investors can make informed decisions and holding rule breakers accountable for their actions”, the lawmaker wrote.

“To steal a line from Justice Scalia, this is pure applesauce”, said SEC Republican Commissioner Daniel Gallagher.

Although proponents of the rule have argued that knowledge of the CEO-to-worker compensation ratio would be good for investors, labor unions have not made any secret of their hope such disclosures would raise the public pressure on businesses to limit executive pay.

Mike Ryan, vice-president of corporate governance at the Business Roundtable said: “It will impose on companies and their shareholders an extremely costly and burdensome requirement, and compel companies to disclose immaterial, if not misleading, information”.