Will the SEC stand up to the financial industry's disingenuous smokescreen?
The Securities and Exchange Commission (SEC) should respond immediately to twin letters from U.S. senators and representatives, sent this week, calling on the agency to “prioritize” the implementation of important disclosure about CEO pay. Approved as part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the section 953(b) provision requires publicly traded companies to disclose the ratio of CEO pay as a proportion of the median-paid employee at the firm.
In the face of intense industry lobbying, the SEC has yet to propose a rule for public comment. A simple disclosure figure should be well within the SEC’s ability. Corporate America’s antagonism may be revealing but should not be compelling.
The financial industry argues that identifying median pay will be difficult. Such claims either constitute an embarrassing confession about widespread mismanagement of a central financial issue, or a disingenuous smokescreen. The idea that firms have no idea what they pay their staff is ludicrous.
CEO pay has swollen from 42 times that of average factory workers in 1980 to 319 times in 2010. Studies show morale and productivity problems in the face of disproportionate CEO pay.
The congressional letter states that: “Income inequality is a growing concern among many Americans. … Incomes at the very top have skyrocketed in recent years while workers’ wages and incomes have stagnated. … And while comprehensive data will not be available until this provision takes effect, there is no question that CEO pay is soaring compared to that of average workers.”
A Public Citizen report last year found that industry lobbyists contesting this rule have spent more than $4.5 million trying to avoid disclosure. In addition, the U.S. Chamber of Commerce has sent two letters to the SEC opposing this measure.
Rather than fight to block it, the industry should embrace it. Investors would benefit from this type of disclosure.
The letters are available at https://www.citizen.org/documents/House-SEC-Letter-on-953b-rulemaking.pdf and https://www.citizen.org/documents/Senate-SEC-letter-on-953b-rulemaking.pdf.