Divided SEC Proposes Rule to Require More CEO Pay Disclosure

On Sept. 18, three out of five Securities and Exchange Commission (“SEC”) commissioners voted to propose a rule that public companies disclose the pay gap between chief executive and median worker compensation. At the moment, SEC regulations require that publicly-listed companies disclose the compensation of their chief executives but not of their employees. The proposed rule would require two additional disclosures: First, the median compensation for all employees excluding the chief executive, and second, the ratio between that figure and the chief executive’s annual compensation.

According to SEC Chair May Jo White, the 2010 Dodd-Frank Act required this rule, and the proposal “provide[s] companies significant flexibility in complying.” But Commissioner Michael S. Piwowar, who voted against the proposal, argued that the pay ratio disclosure rule has nothing to do with the SEC’s core mission, would harm investors, and has as its sole objective public shaming of CEOs.

The proposal will have a 60-day public comment period. The SEC must vote on the proposal after that period before the rule goes into effect.