In recent Congressional testimony, Securities and Exchange Commission Chair Mary Jo White was optimistic that a final version of the controversial pay-ratio rule could be ready by the end of the year. Nevertheless, Americans for Financial Reform, a prominent advocacy group and coalition of Wall Street watchdogs, is demanding action.
In Sept. 2013, the SEC proposed a rule that would require companies to disclose a comparison of their CEO pay to that of the median employee. Under that proposal, companies need to produce a median compensation figure for all workers, domestic and overseas. Whether good news or bad depends on your perspective, but expect the final rule to arrive soon.
The SEC received more than 128,000 letters commenting on the proposed rule, AFR says in a recent public statement regarding the rule proposal. The vast majority of those letters, it claims, urged the Commission to follow through with its proposal, which is backed by a great many pension funds, investor organizations, labor unions and public interest groups, including, California Public Employees’ Retirement System, Public Citizen, the AFL-CIO, and others.
“Despite this overwhelming expression of support for pay ratio disclosure, the SEC still has not issued a final rule implementing the provision,” AFR said. “At a recent hearing of the Senate Banking Committee, SEC Chair Mary Jo White declined to give a firm date by which the regulator will issue the rule. It’s time for the SEC to finalize the rule so investors can see what some corporate executives are still trying to hide.”
Pay ratio disclosure was first proposed in a 1997 paper by James Cotton, a professor of law at the Texas Southern University and a retired corporate lawyer. Disclosure, he argued, would provide an objective standard for measuring the reasonableness of a CEO’s pay. Businesses and the trade groups that represent them, however, have argued against applying this approach through rulemakings, claiming it will be too complex and costly given the diverse nature of an often international workforce.