A divided U.S. Securities and Exchange Commission proposed that public companies disclose how much more their chief executives earn than rank-and-file workers.
SEC commissioners voted 3-2 at a meeting in Washington Wednesday to propose and seek comment on a requirement opposed by the agency's two Republican members and more than 20 large business lobbying groups, which say the data will be costly to compile and won't help investors. The disclosure rule, championed by unions and some congressional Democrats, must be issued under the 2010 Dodd-Frank law.
In an attempt to make compliance less costly for companies, the SEC proposed that businesses can use sampling and estimation methods to determine the median pay of workers, according to a summary of the plan issued Wednesday. The plan doesn't allow companies to exclude part-time workers or employees based in foreign countries from the calculation.
“The staff has drafted and recommended a proposal that would provide companies significant flexibility in complying with the disclosure requirement while still fulfilling the statutory mandate,” SEC Chairwoman Mary Jo White said.
Sen. Robert Menendez, a New Jersey Democrat who wrote the Dodd-Frank provision requiring the disclosure, had warned the SEC against exempting non-U.S. employees and part-time workers. “When I wrote 'all' employees of an issuer, I really did mean all employees of an issuer,” Mr. Menendez wrote in a letter to the SEC shortly after the law was passed and lobbying began to shape the rule.
The law requires public companies to disclose their CEO's total compensation as a multiple of median total worker pay. The law states total compensation includes salary, bonus, stock and option awards, long-term incentive pay, and change in pension value.
Mr. Menendez has said he wrote the provision to ensure investors know whether a company's pay practices are “fair” and whether “executives are sharing proportionately in any sacrifices.” Other proponents of the rule, including unions, say a lopsided ratio would help investors detect whether a company might have morale problems among its workforce that could affect productivity and earnings.
Business groups had urged the SEC to exclude non-U.S. employees from the proposal, saying it's technically challenging to reconcile pay practices in other countries with U.S. disclosure rules.