SEC Ruling: Companies to Compare CEO and Worker Pay

The United States Securities and Exchange Commission recently approved a rule that requires companies to reveal the pay gap between their chief executive officer and their typical worker. This decision hands a new wealth of information to groups that protest rising income inequality.

The decision by the SEC 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 total pay. Companies will have to report the pay ration beginning in 2017.

The 3-2 decision by the commission to mandate disclosure is far from unanimous. However, the agency had delayed the decisions for years and SEC Chair Mary Jo White faced numerous attacks from unions and lawmakers for failure to get the mandate passed. The disclosure is required under the 2010 Dodd-Frank Act.

Republican commissioners and business groups have criticized the SEC ruling, and argue that its primary function is to simply embarrass CEOs and be of no use to investors. Conversely, White and the SEC’s two Democrats, Luis Aguilar and Kara Stein, approved the rule arguing that the measurement will be helpful to shareholders who vote on executive pay packages.

In an attempt to appease businesses that oppose the effort, like Exxon Mobil Corporation, the SEC will require the ratio to be updated only every three years. Additionally, companies will be allowed to exclude as many as five percent of foreign workers from the calculation. The SEC ruling also allows companies to determine median pay with some discretion by using sampling rather than tallying data from all payrolls. Aguilar stated that, “these decisions were designed to facilitate compliance with the rule in a manner that is reasonable and workable for companies.”

Despite concessions, Republican lawmakers and business groups oppose the requirement. Groups like the U.S. Chamber of Commerce and the Business Roundtable are expected to sue the agency over the rule. Lawmakers are considering moves to repeal the provision in Dodd-Frank that underpins the SEC’s ruling.

As a fight over the new disclosure requirements brews, there’s no question that CEO pay has been the subject of scrutiny. “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.”

Whether you’re a CEO at a major company, a non-supervisory employee at any company, or a small-business owner, an advisor at Apex Financial can help you protect and grow your wealth.