Public companies in the US must start disclosing the difference in pay levels between their chief executive officer and average employees, according to a proposal passed by the SEC.
The new rule, which may add fuel to the controversy over executive pay in the US, requires companies to publish the median income of all of its employees, the total compensation for its chief executive and the ratio between the two, according to the SEC.
The rule, approved in a 3-2 vote by the regulator, intentionally left companies with some flexibility as to how the ratio is calculated. The SEC invited public input during a 60-day comment period on the ruling, which was passed to comply with requirements of the 2010 Dodd-Frank Act.
‘This proposal would provide companies with significant flexibility in complying with the disclosure requirement while still fulfilling the statutory mandate,’ says Mary Jo White, chairman of the SEC, in a press statement. ‘We are very interested in receiving comments on the proposed approach and the flexibility it affords.’
When calculating the median income of workers, the SEC says companies can ‘select a methodology appropriate to the size and structure of their own businesses and the way they compensate employees.’
Daniel Gallagher, one of the two Republican commissioners who voted against the ruling, said in a speech that the ruling ‘is sure to cost a lot and teach very little. Its only conceivable purpose is to name and, presumably in the view of its proponents, shame US issuers and their executives.’
Democrat commissioner Luis Aguilar argued that the ruling will ‘help investors to make informed investment decisions and to exercise their rights as shareholders and owners. As owners of public companies, shareholders have the right to know whether CEO pay multiples reflect CEO performance.’
A study by Bloomberg News identified eight companies on the S&P 500 that pay their chief executive officers more than 1,000 times the average wage of workers in their industry: Abercrombie & Fitch, CBS, JC Penney, Nike, Oracle Corp, Ralph Lauren, Simon Property Group and Starbucks.
