In the age of Big Data, corporate America knows a lot about us—our buying habits, where we travel, even our mental health. But ask Corporate America a simple junior high-level question in long division related to CEO compensation and some of these companies freeze like awkward teens at the sock hop.
Unfortunately, Chair Mary Jo White over at the Securities and Exchange Commission appears to buy this feigned incompetence when it comes to pay disclosure. Congress mandated that her agency require that publicly traded companies disclose the CEO’s pay as a ratio to the median paid employee at the firm, or in other words, what is the difference between the average worker and the boss. It’s been more than 700 days since she became chair on April 10, 2013 and inherited this question, but so far Chair White has been Chair Wait.
Sen. Elizabeth Warren (D-Mass), among others, is tired of waiting. On June 2, she fired a coal-hot epistle at the SEC chair. Using the delayed CEO pay rule as Exhibit One, Sen. Warren summarized: “Your leadership of the Commission has been extremely disappointing.”
Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act is one of the simplest of all the 400 mandated rules in this law. This ratio, required of all companies that sell stock to the public, is a way to help investors decide if they’re spending too much on the boss. Companies already report the CEO’s pay, complete with stock options, pension benefits and the like. But these numbers lack context. How does this compare with other employees at the firm? Studies show that large gaps in pay can harm morale and productivity. Investors use ratios all the time to determine company performance. In a sense, it’s like unit shopping at the grocery story. Packages may be different sizes and prices, but how much is the charge per ounce?
Despite claims to the contrary from some industry apologists, calculating this number should be painlessly simple. Companies know what they pay their employees—that’s already disclosed as part of other financial figures. Companies must report each employee’s compensation to the IRS. Figuring out the median-paid employee should also be easy. Any firm managed responsibly enough to expect investors to trust them with capital should certainly know this basic expense.
Defenders of slow-walking this rule say the ratio will shame the CEOs. Well, we say ideally, it will. CEOs and the boards who squander shareholder money by overpaying them should be embarrassed. That’s how financial disclosure works at a public company. CEOs should also be ashamed of other problems with their companies, such disappointing revenue, or botched product roll-outs. A declining stock price is embarrassing, or at least, it should be.
When White succeeded Mary Schapiro as Chair in the spring of 2013, she promised to be an “efficiency nut,” in her quest to promulgate mandated rules. Schapiro was rightly criticized for slow-walking the Dodd-Frank rules, including this no-brainer about the CEO pay ratio. Now, White sits in the dubious position of making Chair Schapiro look good. After finally proposing a rule for the CEO pay ratio in 2013, she has postponed holding the obligatory 15 minute open meeting of the full commission twice now. Yes, that’s all that’s required. A vote. Commissioners Kara Stein and Luis Aguilar have publicly stated they will support the rule. That puts the onus squarely and exclusively on the Chair. It is the Chair who decides the schedule of meetings. And, of course, the Chair must decide how she will vote.
The CEO pay ratio rule isn’t the only issue moldering at the SEC. In fact, Bloomberg recently called the SEC “the agency that barely moves.” The news service quoted insiders as describing Chair White’s office as the “cheese cellar,” because that’s where decisions go to “age.” The agency is “paralyzed” by “poor leadership, staffers say.”
Public Citizen has documented the glacial pace of rulemaking at Chair White’s SEC with several reports, such as “Efficiency Nut,” and “Lowered Expectations.” Dozens of members of Congress have sent letters expressing impatience with White on this rule. Several question her intransigence at congressional hearings. Sen. Warren’s June 2 letter to White documents the numerous times the chair has pledged to complete the CEO pay rule, but failed to deliver. Sen. Warren noted that in a personal meeting May 21, Chair White said the CEO pay rule would be done in the fall. Yet later that same day, the government disclosed that the rule wouldn’t be finalized until 2016, a delay that White’s agency had established in March. Either Chair White was unaware of her own agency’s schedule, or was untruthful, neither of which is comforting for a watchdog that pivots on honest disclosure.
The Corporate Reform Coalition placed advertisements in Washington D.C. Union Station metro stop next to the SEC headquarters using a superhero theme to draw attention to the need for SEC action on another disclosure rule involving corporate political spending. Unfortunately, this government agent’s super talent seems to be inaction: Mary Jo Wait.
Bartlett Naylor is the financial policy advocate with Public Citizen’s Congress Watch division.