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SEC Caves in to Pressure and Postpones Finalizing Rule Requiring Companies to Disclose the Ratio of CEO-to-Worker Pay

SEC Caves in to Pressure and Postpones Finalizing Rule Requiring Companies to Disclose the Ratio of CEO-to-Worker Pay

The U.S. Securities and Exchange Commission (SEC) has caved in to pressure from business groups and Republican lawmakers to postpone requiring companies to disclose the pay gap between their top executive and their median employee. 

The SEC decided to postpone implementing the requirement despite receiving more than 128,000 comments from investors on its proposal—the vast majority of them supporting it.

The requirement for companies to disclose the CEO-to-worker pay ratio is part of the Dodd–Frank Wall Street Reform and Consumer Protection Act that President Barack Obama signed into law in July 2010.

Investors believe the disclosure of the pay ratio is a key financial metric that will give them insight into the wage structure of a company. A steep gap between the CEO and rank-and-file workers can lower employee productivity, morale and loyalty. Investors also will use the pay disparity ratio to assess the reasonableness of CEO pay when voting on executive compensation matters such as “say-on-pay” resolutions.  

The SEC had previously scheduled issuing the final rule on the pay ratio by October 2014. But, in the SEC’s new regulatory calendar for 2015, the agency extended the deadline for finalizing the rule to October 2015.

The SEC’s inability to implement the law nearly five years after it was enacted is astonishing when compared with the speed with which a similar provision was implemented in India. The Indian government implemented a similar provision months after the 2013 Companies Act was enacted in August 2013. The rule became effective in April 2014.  

The SEC’s postponement of the final rule on the pay ratio means companies will not have to disclose the CEO-to-worker pay gap until their 2017 proxy statements at the very earliest—nearly seven years after the enactment of the law. 

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