US companies will have to disclose their CEO-employee pay gap after Securities and Exchange Commission vote

James Nickerson
Follow James
The CEO-to-employee pay gay fifty years ago was 20-to-1 (Source: Getty)

Companies in the US will have to disclose how much their CEOs get paid compared to the salary of an average employee, under new rules voted in by the Securities and Exchange Commission.

The US market regulator voted 3-2 for adopting a rule requiring listed companies to disclose the pay-gap between their CEOs and the median employee, a rule which has been highly controversial.

The SEC’s two Republican commissioners voted against it, citing the negative influence of big labour unions.

Read more: Chief executives earn almost 180 times the UK’s average salary

The vote comes five years after Congress approved the Dodd-Frank Wall Street Reform and Consumer Protection Act, which includes the pay ratio disclosure rule. The rule will come into force in 2017.

Highlighting the divisiveness of the issue, SEC chairwoman Mary Jo White said:

The commission has received more than 287,400 comment letters, including over 1,500 unique letters, with some asserting the importance of the rule to shareholders as they consider the issue of appropriate CEO compensation and investment decisions, and others asserting that the rule has no benefits and will needlessly cause issuers to incur significant costs.

The Economic Policy Institute, a US think tank, found earlier this year the CEO-to-worker compensation ratio was 20-to-1 fifty years ago, but 303-to-1 in 2014.

Read more: How long would it take you to earn as much as these nine top CEOs?

Signalling that this could become a political issue, Hilary Clinton, the frontrunner for the Democratic Presidential nomination, also said earlier this year “the average CEO makes about 300 times what the average worker makes.”

Republican commissioner Daniel Gallagher, however, said the rule will only be used for the naming and shaming of highly paid CEOs, while Republican commissioner Michael Piwawar said:

Today’s rule-making implements a provision of the highly partisan Dodd-Frank Act that pandered to politically-connected special interest groups and, independent of the Act, could not stand on its own merits

White, however, said while the rule is “controversial” it is the “law, and we are required to carry it out.”

Related articles