Public companies must disclose the ratio of CEO pay to median employee pay under a rule adopted Wednesday by the Securities and Exchange Commission.
The rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, was narrowly approved 3-2 by a sharply divided commission. Commissioner Daniel M. Gallagher Jr. called it “a nakedly political rule to once again effect social change” promoted by the AFL-CIO and other groups, but Commissioner Kara M. Stein argued that it will be useful to investors. “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,” Ms. Stein said.
Chairwoman Mary Jo White said in her opening remarks that while the information “comes with a cost,” the final rule was adapted to give companies “substantial flexibility” in determining the pay ratio, including the use of estimates and sampling.
The final rule excludes registered investment companies such as money managers, emerging growth companies, smaller reporting companies, foreign private issuers and registrants filing under the U.S.-Canadian multijurisdictional disclosure system.