The Securities and Exchange Commission gave the green light to a new rule requiring public companies to disclose the compensation gap between the chief executive officer and a “typical” employee.
For publicly traded retailers, the ruling could fuel the fires of social justice activists who have been pushing for higher wages. The typical employee measure would be the median pay of all of the company’s workers. Activists and union groups, citing their own data, say ceo pay is 200 to 400 times greater than the average worker.
The SEC approved the mandate in a 3 to 2 vote. Commissioner Luis A. Aguilar, a democrat, voted in favor of the mandate and said that it provides “better disclosure for investors regarding executive compensation at public companies.”
The mandate is required under Section 953(b) of the Dodd-Frank Act. “The hope, quite simply, is that this information will better equip shareholders to promote accountability for the executive compensation practices of the companies that they own,” Aguilar said, adding the SEC “received over 287,000 comment letters, with over 1,500 individual letters and the rest form letters” regarding the mandate.
“The diverse views expressed by these commenters reflect that Congress tasked the commission with navigating a highly divisive subject — a boon or a bane, depending on one’s perspective,” he added. “Many of these commenters urged adoption of the pay ratio rule, and cited the benefits from such a disclosure. For example, they pointed to the ability of investors to use ceo-to-worker pay ratios as an additional metric in evaluating and voting on executive compensation matters, including ‘say-on-pay’ votes.”
Aguilar went on to say supporters of the requirement said the disclosure would also increase corporate visibility and help define the effectiveness of corporate governance.
The disclosure ruling comes at a time when retailers face mounting pressure on wages for their rank and file workers.