* Rule would require disclosure of median worker pay to CEO
* Labor groups favor rule, say it will help investors
* Sharply divided SEC issues release for public comment
* Another rule: SEC to oversee municipal financial advisers
By Sarah N. Lynch
WASHINGTON, Sept 18 U.S. corporations will need
to disclose how the paychecks of their chief executive officers
compare with those of their workers under a new proposal
released on Wednesday by a sharply divided U.S. Securities and
With CEOs of many U.S. companies earning hundreds of times
more than their workers, unions and labor advocates are
championing the SEC's CEO pay-ratio rule. They say disclosures
would help investors identify top-heavy compensation models.
But business groups such as the U.S. Chamber of Commerce and
the Center on Executive Compensation oppose the measure, calling
the data costly to compile and of little use to investors.
Among U.S. companies with the highest-paid CEOs are Oracle
, Walt Disney, Viacom and Starbucks
, whose CEOs in 2012 earned between $28 million and $96
million, according to the compensation data provider Equilar.
The SEC declined to address the chief complaint by companies
and trade groups who wanted corporations with global operations
to be allowed to report median pay only for U.S. employees.
The 2010 Dodd-Frank Wall Street reform law requires the
disclosures and gives the SEC little wiggle room for changes
demanded by critics. Still, the SEC tried to minimize compliance
costs by giving companies flexibility in methods of calculating
the total compensation of employees.
For instance, companies could use statistical sampling, an
option that the SEC's Chief Economist Craig Lewis said could
reduce compliance costs. The SEC would also permit annualized
figures for permanent employees who did not work a full year,
such as new hires.
Companies say investors have little appetite for such
information, citing failed efforts by shareholder activists to
adopt resolutions requiring CEO pay-ratio disclosures.
SEC Chair Mary Jo White said the deep divisions over how to
implement this rule were evident in the more than 20,000 comment
letters the agency had received on the subject.
"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," White said of the plan.
The opinions of the five SEC commissioners reflected the
divisions between organized labor and corporate America. The
newest Republican Commissioner, Michael Piwowar, said before the
vote that the SEC had no business even considering the rule.
"Proponents have acknowledged the sole objective of the pay
ratio is to shame CEOs, but the shame from this rule should not
be put on CEOS- it should be put on the five of us," he said.
"Shame on us for putting special interests ahead of
Commissioner Luis Aguilar, a Democrat who supports the
measure, said the disclosures are important. "As owners of
public companies, shareholders have the right to know whether
CEO pay multiples reflect CEO performance."
He added that "Pay ratio disclosure can provide a valuable
new perspective for executive compensation decisions."
Equilar's analysis of 2012 data showed the highest-paid CEO
was Oracle's Lawrence Ellison with $96.1 million.
The CEO ratio pay proposal is one of two major outstanding
regulations mandated by Dodd-Frank that the SEC tackled at
Wednesday's public meeting. The agency also approved a
long-awaited rule to bring the financial advisers of
municipalities under federal oversight.
After the collapse of the big investment bank Lehman
Brothers five years ago, the 2007-2009 financial crisis prompted
public outrage over high CEO pay at Wall Street firms bailed out
by taxpayers. Congress passed the Dodd-Frank law in response.
A recent report by the left-leaning Institute for Policy
Studies, which analyzed data on the highest-earning CEOs over a
20-year period, found that those whose companies collapsed or
received government bailouts have held 112 of the top 500 slots.
The report said the pay gap between CEOS and the average
American worker has grown from 195-1 in 1993 to 354-1 in 2012.
Compensation consultants warned about drawing conclusions
based on pay ratios, even among companies that are direct
"An employer with a workforce that has a larger proportion
of lower-paid employees, or that has significant overseas
operations in lower-paid locations, may have a pay ratio that
suggests greater disparity in pay than other employers even
where the CEO compensation is lower," said Regina Olshan, a
partner with Skadden, Arps, Slate, Meagher & Flom LLP.
"Further, those same companies will likely have a greater
administrative burden to comply with the disclosure
Proponents of the CEO pay ratio rule lauded the measure.
"The simple fact is that large pay disparities between CEOs
and their employees affect a company's performance," said
AFL-CIO President Richard Trumka. "When the CEO receives the
lion's share of compensation, employee productivity, morale and
Timothy Bartl, president of the Center on Executive
Compensation, said he will fight for Congress to overturn that
provision in Dodd-Frank.
"The Center strongly opposes the pay ratio requirement will
continue to work for its repeal in Congress," he said.