The U.S. Securities and Exchange Commission on Wednesday is expected to adopt final rules requiring disclosure of the ratio of CEO pay to the median worker at publicly held companies.
"We've been waiting eagerly for more than five years now. The disclosure will provide important context for investors. We are pleased the SEC appears to be on the verge of taking final action on the rule," Heather Slavkin Corzo, AFL-CIO director of Office of Investment, told a press briefing Tuesday. "The message to the commission is clear: We expect a strong rule without loopholes."
Those loopholes are said to include a provision that companies be allowed to exempt 5 percent of their foreign workforce. "We think the loopholes being pushed are without basis and unnecessary," Corzo said.
The issue of executive compensation came under scrutiny during the 2008 financial crisis, and advocates of financial reform have been waiting for the SEC to follow up on this key piece of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, passed to prevent a repeat of the Great Recession.
In September 2013, the regulatory agency voted 3-2 to propose a rule to tie the pay of top executives to the financial performance of their corporations. The proposed disclosure rule, which the SEC opened for public comment the following month, would require companies to simply state information that already exists for those willing to plow through financial reports.
"It is such a simple regulation, you'd think it would have been one of the first things that they would have taken care of," Institute for Policy Studies analyst Sarah Anderson said of the proposal, which stipulates that companies have to disclose whether executive compensation is in line with how the company is doing.
That said, "the backlash has been so intense from the corporate community," Anderson said of opposition to the proposed rule, which has come from entities including the National Association of Manufacturers (NAM) and the U.S. Chamber of Commerce, one of the nation's top three lobbyist groups.
The industry arguments for a repeal of the proposal include the cost of compliance and the stance by the NAM that manufacturers and other nonfinancial companies "had nothing to do with the financial crisis." In a July 6 letter to the SEC from the NAM's Carolyn Lee, senior director of tax policy, the group also argued that the proposal would not produce useful information for investors.
Corporations could challenge the rule in court, and business lobbyists are likely to push Congress to pass legislation repealing the requirement once the final rule is out, Anderson and Corzo said.
In a June 2 letter to SEC Chair Mary Jo White, Sen. Elizabeth Warren, D-Massachusetts, called out White for what Warren termed an "extremely disappointing" two-year tenure. The senator said under White's watch the agency had failed to "consistently and aggressively enforce securities law and protect investors and the public."
Warren cited the SEC's slowness to finalize the rules requiring disclosure of the ratio of CEO pay to the median worker as among White's failings. "The public relies on the SEC to act as the cop on the beat for an honest marketplace-issuing rules that ensure that investors can make informed decisions and holding rule breakers accountable for their actions," the lawmaker wrote.
However, at least one SEC official has a rather different take. In a speech Tuesday to the U.S. Chamber of Commerce in Washington, his last as a member of the regulatory agency, SEC Commissioner Daniel Gallagher declared that Dodd-Frank had backfired. He said the agency has become "the implementing tool for the long pent-up dreams of liberal policymakers and special interest groups."