After significant delays, the Securities and Exchange Commission issued a final rule Wednesday which will force publicly traded companies to disclose the ratio of CEO pay to worker compensation.
“The Commission adopted a carefully calibrated pay ratio disclosure rule that carries out a statutory mandate,” commission Chairwoman Mary Jo White said in a statement. “The rule provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.”
The rule was finalized as part of a requirement under the Dodd-Frank Act, which was passed in response to the 2008 financial crisis. Under the new rule, companies will be required to publicly disclose the pay of top executives in relation to their average worker.
The agency voted back in 2013 to write and implement the rule but because of delays a final version took longer then expected. The Republican minority on the commission was not happy with the finalized rule.
“May be the most useless of our Dodd-Frank mandates,” Republican Commissioner Daniel M. Gallagher said Wednesday, according to The New York Times.
The ratio rule found quick support among the labor movement. The AFL-CIO has led much of the effort to pressure federal officials into finalizing and implementing the rule. The union has even launched a website dedicated to the issue.
“The rule will provide important information about companies’ compensation strategies and allow shareholders to determine whether CEO pay is out of balance in comparison to what a company pays its workers,” AFL-CIO President Richard Trumka said in a statement. “We believe investors deserve transparency.”
The issue is only a small part of what the labor movement sees as the bigger issue. Unions have been in a fevered fight against what they see as unjust wealth differences between most Americans and business leaders. Unions have also pushed for higher minimum wages.
Since the 2013 vote, the idea has seen significant pushback. David Hirschmann, a top U.S. Chamber of Commerce official, argued the rule will do a lot of harm.
“This proposal has the potential to drive up compliance burdens and costs for public companies with no benefit to investors,” Hirschmann said back in 2013. “A formula that continues to make it less attractive to be a public company in the United States.”
The rule is expected to start take effect in 2017.
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