Disclose the Salary Gap Between
CEOS and Their Employees
By: Mel Haas
On September 18, 2013, the Securities and Exchange Commission released proposed rules pursuant to the Dodd Frank Act that will require disclosure of the pay gap between chief executive officers and their employees.
The Dodd-Frank Act
The Dodd Frank Wall Street Reform and Consumer Protection Act was passed in 2010 by President Obama. The Act got its name from its sponsors Senator Christopher J. Dodd and Barney Frank. The Act was the result of the 2008 recession and an attempt to stabilize the financial sector and to avoid future recessions. The Act itself is lengthy with many provisions that affect different areas of the financial sector, particularly the banking industry.
The proposed amendments are based on section 953(b) of the Act, which directs the SEC to amend Item 402 of Regulation S-K to reflect the so-called “pay ratio” disclosures. The amendments would “require disclosure of the median of the annual total compensation of all employees of an issuer (excluding the chief executive officer), the annual total compensation of that issuer’s chief executive officer and the ratio of the median of the annual total compensation of all employees to the annual total compensation of the chief executive officer.” While this language is legalistically worded, employers will basically be required to disclose difference in pay between the CEO and the employees of their companies. This disclosure is referred to as a “pay ratio” disclosure, and essentially requires companies to disclose salaries to the public. The purpose of this legislation was disclose what the legislation proposed as a material information to investors.
Before issuing the proposed rules, the SEC sought comments on this type of legislation. The concerns raised about this type of legislation addressed the cost of compliance, the ability to make accurate disclosures, and that this type of information would not be material to investors. Others stated that the information would be material to investors and would demonstrate the impact of high CEO salaries on companies.
Impact on Employers
The impact of this kind of legislation is speculative at this point. However, employers should be aware that organized labor will probably try to emphasize pay disparities in their campaigns, and this information would make that easier to accomplish. In order to be prepared for a union campaign, employers should have a plan of action for a campaign, including assessing potential issues and how to respond. The “pay ratio” established by the SEC could very well become one of the hot topics for organizers.
To submit a comment on these proposed regulations submit a comment electronically through firstname.lastname@example.org. Please include File Number S7-07-13 on the subject line or use the Federal Rulemaking ePortal (http://www.regulations.gov). Follow the instructions for submitting comments.