When Congress passed Dodd-Frank in 2010, the most substantial piece of Wall Street reform in years, it included a provision that required most publicly traded companies to disclose the compensation ratio between its CEO and its average worker-a symbolic measure that Democrats included as a way to shine light on income inequality.
Last week (more than five years later), the SEC finally approved, along party lines, a rule that requires such disclosure. As a way increasing transparency over exorbitant executive compensation and allowing for more informed, socially-responsible investment, most publicly traded companies will now be forced to show in simple terms how many hundreds of times more its top executive is paid than its employees.
As research from the Economic Policy Institute (EPI) has shown, it will likely not be a favorable number for most corporations. In 1965, the average CEO-worker pay ratio was 20 to 1. In 2014, it was 303 to 1. The average compensation for a CEO in 2014 was $16.3 million.
The SEC rule's passage is being lauded as a big win for financial reform advocates like Elizabeth Warren, who consistently berated the commission for taking so long to pass the mandated rule. But Republicans and the CEO lobby are feeling a little victimized and upset. A Republican SEC Commissioner, Daniel Gallagher, quipped, "To steal a line from Justice Scalia: This is pure applesauce."
The U.S. Chamber of Commerce has dubbed it a "name-and-shame tactic," saying in a statement: "Congress added this disclosure to Dodd-Frank as a favor to union lobbyists who misguidedly think it will help their organizing efforts. When disclosure is used to advance special interest agendas rather than provide investors with better information, it is a step in the wrong direction."
While the SEC has said it will cost companies a measly $73 million to comply, the Chamber of Commerce contends that the costs will be an "egregious" $700 million a year.
"It's cost without a purpose," John Engler, president of the Business Roundtable, a Washington association of CEOs, told The Los Angeles Times.
No doubt, the powerful business lobby will continue to sound the hyperbolic alarms, claiming what seems like some pretty basic arithmetic amounts to a costly and burdensome government regulation that will stoke the class-warfare fire and force CEOs to spend their hard-earned income on anti-pitchfork insurance.
But maybe it's a good thing that big business is a little uneasy about making public just how large its pay disparities are. While transparency doesn't always lead to change, there are those who are optimistic that the new rule will have a real impact.
"I used to think this was symbolic," Larry Mishel, president of the EPI, told The Los Angeles Times. "But the fact is, the pay of people in publicly held companies drives the executive pay market-for people in privately held firms, for universities, for hospitals."
