Companies Forced to Compare CEOs’ Pay to Workers Under SEC Rule

U.S. companies will be forced to reveal the pay gap between the chief executive officer and their typical worker, handing a new weapon to groups protesting rising income inequality.

The Securities and Exchange Commission is set to vote Wednesday on a rule that will force the new disclosure. The agency has delayed progress on the rule for years, with SEC Chair Mary Jo White facing attacks from unions and Democratic lawmakers in recent months for failing to get it done.

The disclosure is required under the 2010 Dodd-Frank Act, which hasn’t stopped it from splintering the five-member commission. Republican commissioners argue it’s meant to embarrass CEOs and won’t be useful to investors.

White and the SEC’s two Democrats, Luis Aguilar and Kara Stein, are expected to approve the rule. Democrats say the metric will be helpful to investors who are deciding how to vote on executive pay packages.

“As investors increasingly focus on corporate governance and executive compensation issues at public companies, the pay ratio disclosure will provide another metric that is useful on many fronts, such as say‐on‐pay votes,” Stein said in a statement prepared for the meeting.

Company Discretion

The SEC rule requires companies to disclose the median compensation of all its employees, excluding the CEO, and publish a ratio comparing that figure to the boss’s pay.

In a nod to businesses such as Exxon Mobil Corp. that oppose the effort, the SEC will require the metric to be updated only once every three years and will allow them to exclude some foreign workers from the calculation.

The SEC gave companies some discretion in determining the median pay of its workers. Companies can use a methodology based on their own “facts and circumstances” and base the figure on a statistical sampling of employees, rather than the entire workforce, the regulator said.

Average CEO pay at the 350 largest U.S. companies by revenue surged 997 percent from 1978 to 2014, while the compensation of non-supervisory employees rose 10.9 percent, according to the Economic Policy Institute, a research group that advocates for workers.

While CEOs earned about 30 times what the typical employee did in 1978, corporate chiefs’ pay had jumped to more than 300 times their employees’ compensation as of 2014, the institute said.

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