SEC Could Make Gabelli Pay New Front in Fight Over Income DivideDave Michaels
Mario Gabelli, Leslie Moonves, and David Zaslav make tens of millions of dollars annually, which routinely lands them on lists of the highest-paid corporate chiefs in the U.S.
Now, the government is poised to shine a brighter spotlight on how much more they earn than their employees, handing interest groups a new weapon to use when protesting rising income inequality.
The U.S. Securities and Exchange Commission, facing intense corporate opposition, is planning to vote as soon as August 5 on a rule that will force public companies to publish a ratio that compares the chief executive officer’s reported pay with that of their typical worker, according to two people familiar with the matter who asked not to be named because the agency’s schedule isn’t public.
The disclosure is required under the 2010 Dodd-Frank Act and the SEC has delayed it for years, missing timelines outlined last year by Chair Mary Jo White. White, who took over as chairman in 2013, is now moving forward as Democratic lawmakers demand she finish policies that have languished. U.S. Senator Elizabeth Warren has cited inaction on the pay-gap rule as why she considers the SEC chairman’s tenure “extremely disappointing.”
SEC spokeswoman Gina Talamona declined to comment.
Average CEO pay at the 350 largest U.S. companies by revenue surged 937 percent from 1978 to 2013, while the compensation of non-supervisory employees rose 10.2 percent, according to the Economic Policy Institute, a research group that advocates for workers. The Standard & Poor’s 500 Index has returned more than 5,000 percent over the same time period, with dividends reinvested.
While CEOs earned about 30 times what the typical employee did in 1978, corporate chiefs’ pay had jumped to almost 300 times their workers’ compensation as of 2013, the institute said. Its estimate is based on data provided by the federal government.
When the SEC first proposed the pay rule in September 2013, it defined the income gap as the ratio of a CEO’s total compensation to the median pay level of the workforce. To the chagrin of business groups, the SEC’s formula included foreign workers and part-time employees, which is expected to bring down the median worker’s pay figure.
The SEC has recently studied whether to remove some workers from the calculation, issuing an analysis on June 4 that estimated how much the ratio would drop if lower-paid overseas or seasonal workers are excluded. The change could reduce the ratio by as much as 13 percent at firms where pay levels vary the most.
To get the regulation passed, White will need the support of the SEC’s two Democratic commissioners, Luis Aguilar and Kara Stein.
Daniel Gallagher and Michael Piwowar, the agency’s Republican commissioners, argue the new disclosure won’t help investors and will be used by groups such as labor unions to shame CEOs. The Republicans voted against the proposal two years ago, with Piwowar saying the five-member SEC should be ashamed for advancing it.
In an October 2013 speech, two weeks after White voted in favor of seeking public comment on the pay-ratio rule, she said some measures the agency was required to pass under Dodd-Frank seemed “more directed at exerting societal pressure on companies” than informing investment decisions. She didn’t cite specific examples.
Gabelli, CEO of money-management firm Gamco Investors Inc., got $242.5 million over the past three years, while CBS Corp.’s Moonves made $186.3 million, according to the companies’ proxy filings. Zaslav, who runs pay-TV network Discovery Communications Inc., has been granted $239.3 million since 2012.
CBS Corp. spokesman Dana McClintock declined to comment. A Gamco spokesman didn’t respond to a message seeking comment and Discovery spokeswoman Catherine Frymark declined to comment.
Officials at the AFL-CIO labor union say the pay ratio will provide useful information to shareholders when they register non-binding votes on executive compensation at companies’ annual meetings. Unions also argue that big gaps in pay between the executive suite and the rest of the workforce can provide a window into employee morale, which is valuable to investors.
The metric also could become a political tool for policy makers and advocacy groups. State senators in California considered legislation in 2014 that would have imposed higher tax rates on companies that pay their CEO more than 400 times what the median worker earns. Rhode Island state senators considered similar legislation last year that would have tied state contracting opportunities to the ratio.
“That’s one reason why the corporate groups have fought so hard on it,” said Sarah Anderson, executive-pay analyst at the Institute for Policy Studies, a progressive research group whose funders include the Ford Foundation. “They are thinking like we are -- once this becomes a legitimate indicator, people will want to build on it to have some tougher reforms.”
Corporate groups that oppose the rule have told the SEC that calculating the ratio won’t be as easy as it seems. For instance, including overseas employees in the evaluation will drive up compliance costs and could run afoul of European Union privacy laws, according to the Business Roundtable, which represents CEOs.
“Every company has multiple problems calculating this ratio,” said Michael Ryan, vice president for financial services policy at the Roundtable. “This rule is completely a fool’s errand.”
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