The Securities and Exchange Commission voted 3-2 Wednesday to push forward with a plan to force publicly traded companies to disclose the ratio of CEO pay to employee compensation.
The move was in accordance with the Dodd-Frank Act, which arose out of the 2008 financial crisis.
Under current SEC rules, companies are required to disclose chief executive officers’ pay. However, they are not required to report individual employee pay.
After a 60-day public comment period, the new law will force public companies to calculate and disclose a ratio between CEO compensation and median employee compensation — that is, pay statistics for employees at the 50th percentile of compensation.
Business interests have strongly opposed the measure which was pushed as complaints about runaway CEO pay have grown louder.
David Hirschmann, CEO of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, pushed back against the mandate in a statement.
“This proposed rule is another example of special interests promoting policies contrary to the interests of investors and the businesses they invest in,” said Hirschmann, whose group represents over 3 million businesses.
“Pay ratios will not give any insight on the performance of a company or its management and fail to give investors decision-useful information or assist with capital formation.”
Hirschmann also expressed concern about compliance burdens and costs to public companies which will provide “no benefit to investors.”
For its part, the SEC says that the measure “would provide companies significant flexibility in complying with the disclosure requirement.”
Some companies such as emerging growth companies are exempt from the requirement.
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