In a move supporters are cheering as a victory for workers—and filing under the "better late than never" category on the part of the government—the Securities and Exchange Commission on Wednesday voted to adopt new rules requiring a public company to disclose the pay ratio between its CEO and employees.
Advocates say the disclosure rule, which is required under Section 953(b) of the 2010 Dodd-Frank Act, is commonsense and hope it will provide some relief to the gross economic inequality in the American workplace.
"We finally have an official yardstick for measuring CEO greed," said Sarah Anderson, director of the Global Economy Project at the Institute for Policy Studies (IPS). "This is a huge victory for ordinary Americans who are fed up with a CEO pay system that rewards the guy in the corner office hundreds of times more than others who add value to their companies."
Such information, said IPS veteran compensation analyst Sam Pizzigati, could pave the way for additional reforms, such as higher corporate income tax rates for companies with the widest pay gaps, or government contracts going to corporations with more moderate divides. "This new ratio information," Pizzigati said, "will make it easier to ensure that our tax dollars do not enrich corporations that are widening our economic divide."
The version of the rule adopted by the SEC on Wednesday, which goes into effect beginning 2017, mandates that a company disclose the ratio of the total compensation of its CEO to the median total compensation received by the rest of its employees. It includes what analysts say are "minor loopholes," such as allowing companies to calculate median worker pay every 3 years and exclude up to 5 percent of non-U.S. employees while identifying employee population for median pay. This has the potential to skew the results for companies with a large overseas workforce.
The disclosure rule has taken a full five years to come to pass largely because of a intense corporate lobbying effort against it.
SCROLL TO CONTINUE WITH CONTENT
Never Miss a Beat.
Get our best delivered to your inbox.
The U.S. Chamber of Commerce has argued that the rule would force companies to spend an average of 1,825 hours, at a cost of $311,800, to produce the ratio.
In an op-ed on Tuesday, AFL-CIO president Richard Trumka dismissed these claims as "nonsense." Further, he noted that the law only calls for transparency, not reform.
"It does nothing to bring that ratio back into balance. It doesn't raise pay for workers, reduce compensation for CEOs or force companies to change their compensation practices one iota," Trumka wrote. "As we said at the time, Dodd-Frank was a compromise. The only barrier here is Wall Street's fear of embarrassment."
Five years later, advocates of the rule say that it was the groundswell of support that finally forced the SEC to deliver on its promise.
In her opening remarks, SEC Chair Mary Jo White referenced the more than 287,400 comment letters submitted about the rule, an overwhelming majority of which were supportive. Ahead of the vote last week, Rep. Keith Ellison (D-Minn.) delivered a letter signed by 47 House members expressing disappointment over the delay and calling on the SEC to finalize the rule.
Following the vote, Ellison wrote online: "We need to see inequality to be able to fight it."