SEC pay gap rule will cost companies

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”. Under the revamp, up to 5% of a company’s global workforce can be excluded, and the median worker can be determined once every three years.

In 2014, the electric and gas utility reported a 24-1 ratio, which means the company’s top executive made 24 times more than the average employee.

Debate over the pay-ratio requirement intensified after the SEC proposed the new rule in 2013. Investors, who already have a decent enough idea of the median wage in a particular sector thanks to detailed data from the Bureau of Labor Statistics, can make the calculation in their heads or at least have a sense of what the CEO makes compared to workers, and determine whether or not it offends them.

Today in a 3-2 vote, the Securities and Exchange Commission adopted a rule forcing companies to disclose pay disparities between their CEOs and their lowest paid workers. Companies could also exempt employees from the ratio by shifting to subcontracted workers. Studies show that boosting the salaries of low-paid employees has a greater impact on the economy than reducing the top dog’s pay, with relatively modest changes resulting in big economic gains.

And those ratios can be staggering.

“The view that the system is broken is completely wrong”, he said. That delay was one of the complaints voiced by Massachusetts Sen.

The AFL-CIO, America’s largest trade union, had repeatedly voiced support for the regulation’s adoption. She joined the two Democratic commissioners in voting for it.

“This proposal has the potential to drive up compliance burdens and costs for public companies with no benefit to investors”, Hirschmann said back in 2013. The companies “should not be able to fudge the numbers there”.

“Calculating this figure is definitely not trivial”, said Robert Jackson Jr., professor of law at Columbia.

“I used to think this was symbolic”, he said.

It’s well-know that, in recent decades, salary for CEOs has skyrocketed, while pay for the average worker has stagnated, at best, and even gone down by some estimations.

The rule takes a relaxed approach in several areas. ‘The rule provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.’. Companies can also exclude up to 5 percent of their employees who are not in the United States. Median compensation might help a rival make some accurate estimates of how much the company pays to employees, which gives an insight into wage structures and possibly how much would be needed to lure away certain types of employees.

Proponents hope the bill will spur shareholders to force corporate boards to curb executive pay and disperse corporate revenue more broadly.

To identify the median employee, the rule would allow companies to select a methodology based on their own facts and circumstances.

Starting in about 2018, the ratios will begin to appear in companies’ public financial statements.

Prior disclosure rules had sought to set these kinds of incentives and conditions.

“May be the most useless of our Dodd-Frank mandates”, Republican Commissioner Daniel M. Gallagher said Wednesday, according to The New York Times.