SEC requires companies to reveal CEO-vs-worker pay gap

Mary Jo White, chairman of the U.S. Securities and Exchange Commission (SEC), speaks during a House Financial Services Committee hearing in Washington, D.C., U.S., on Tuesday, March 24, 2015.

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. And in the near future, Americans will find out how big the disparity actually is within publicly traded companies.

The Securities and Exchange Commission voted Wednesday to order most public companies to disclose the ratio between their chief executives’ annual compensation and median, or midpoint, employee pay. Disclosing pay for the “median worker” could become a nightmare for the human resources departments and potentially expose the awkward and raw tensions of workplaces that are undercut by the growing gaps in pay. But the numbers could pack a symbolic punch, though, and nudge company directors as watchdogs to push back on executives’ excess, supporters of disclosure say. Requiring further disclosures of executive pay has long been a goal of liberals concerned about inequality, many of whom blame compensation practices for creating incentives that led to the financial crisis. Outsize pay packages – often tied to the company’s stock price – were blamed for encouraging disastrous risk-taking and short-term gain at the expense of long-term performance.

The SEC will vote on Wednesday on the Dodd-Frank pay ratio rule, five years and a few weeks after the fifth anniversary of the law’s passage.

The rule “should provide a valuable piece of information to investors and others in the marketplace”, as well as details “about how a company manages human capital”, Democratic SEC Commissioner Kara Stein 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”, Mike Ryan, vice president of corporate governance at the Business Roundtable, said in a statement Monday.

On the other side, investor advocates, shareholder groups and union pension funds have pushed for reporting of the CEO-employee pay gap.

But Republicans say regulators (ie., the government) have no business telling companies what they can pay their CEOs.

That said, “the backlash has been so intense from the corporate community”, Anderson said of opposition to the proposed rule, which has come from entities including the National Association of Manufacturers (NAM) and the U.S. Chamber of Commerce, one of the nation’s top three lobbyist groups.

Warren charged that White provided the senator with “misinformation” during a May meeting about the finalizing of the CEO pay disclosure rule. Fifty years ago, chief executive officers were paid roughly 20 times as much as their employees, compared with almost 300 times as much in 2013, according to an analysis last year by the Economic Policy Institute. That’s about 1,162 times what the average rank-and-file U.S. worker earns in a year, according to the AFL-CIO.

The spotlight on executive compensation packages is about to get hotter.

Still, what the SEC has done here is give shareholders, and the public, information that will let them determine if they think the compensation that their CEO is getting is fair or not. And it may be that concern over more paperwork is an issue.