Carolyn Kaster / AP

SEC to force companies to reveal CEO-to-worker pay ratio

Publicly traded companies will now be required to disclose disparity between chief's compensation and median employee

The Securities and Exchange Commission (SEC) voted Wednesday to force most publicly traded companies to reveal their ratio of CEO compensation to median worker pay.

The decision brought an end to five years of debate and revision, which began when Congress passed the Dodd-Frank financial reform bill in July 2010. Dodd-Frank created the disclosure requirement but left the SEC to determine exactly how the rule would be implemented.

Under the final version of the regulation, companies will have some latitude to determine which of their employees factor will into their calculations, as well as the methodology for estimating total compensation. Testifying before the SEC on Wednesday, the drafters of the proposed rule said they hoped such flexibility would increase the likelihood that businesses would comply with the new disclosure requirements.

The firms that must now comply with this new rule are already required to disclose CEO pay, and, as with the previous CEO pay rule, some companies, including small firms and so-called "emerging growth companies" with limited revenue, are exempt.

"These are good and reasonable changes that should reduce costs for many companies while adhering to the statutory requirements,” SEC chair Mary Jo White said in a statement at the Wednesday meeting.

The SEC’s two Republican members opposed the regulation but were overruled by the three-member Democratic majority. Speaking shortly before the vote, Republican commissioner Michael Piwowar described the rule as “another blatant attempt to limit executive compensation” perpetrated by labor unions and their allies in government.

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. While the SEC was still accepting public comment on the proposed rule, AFL-CIO — America's biggest labor federation — urged supporters to send the agency emails favoring disclosure because the regulation would “shame companies into lowering CEO pay."

CEO compensation has exploded over the past 50 years according to research by the Economic Policy Institute (EPI), a progressive think tank with ties to the American labor movement. 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. EPI President Lawrence Mishel told Al Jazeera that high CEO pay helps to drive pay disparities across the economy.

“I used to think this was a symbolic issue, but the fact is that there are 20,000 to 25,000 executives whose pay is listed in SEC filings,” said Mishel. “And the pay of these executives sets a marker that is followed by firms that don’t sell stock on the open market, privately held firms. It’s driven up the wages of university presidents, people in the nonprofit sector, including hospitals, and the pay of people in other managerial positions."

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