SEC Adopts New CEO ‘Pay Ratio’ Rule

Is the SEC within its authority to regulate CEO salaries of public companies?

In 2010, the Dodd Frank Act was enacted to help address some of the egregious and dishonest acts that gave rise to the 2008 financial crisis. Among many other mandates, the Act included a provision requiring that CEOs of publicly traded companies list their salaries in ratio format as compared with the median salary of their employees. The measure, however, has taken several years to implement, and was finally adopted as a proposal the Securities and Exchange Commission (SEC) in August, 2015.

According to Section 952(b) of Dodd Frank, commissioners of the SEC were directed to amend the Code of Federal Regulations to require the following three pieces of information in each quarterly filing:

  • The median of the annual total compensation of all employees, excluding the chief executive officer (or any equivalent position);
  • The total annual compensation of the chief executive officer
  • The ratio of the median employee salary to that of the chief executive officer.

The mandate, which was set into law in 2010, remained stagnant on the books for another two years, at which point the SEC stated it would be “finalizing the [pay ratio rule] within the next two months…”

Finally, in 2013, the SEC formally initiated a proposal to implement the pay ratio rule. Thereafter, nearly 300,000 public comments were launched from concerned investors in favor of the increased disclosure. Not until August 2015, however, did the proposal make it to a vote – which resulted in a 3-2 passage of the pay ratio rule, a measure which some decry will do nothing but ‘publicly shame’ CEOs and the companies for whom they work. Critics also launched complaints about the expensive bookkeeping requirements the new law will impose on these corporations.

Supporters of the measure, however,  hope the publicity aspect will deter the “reckless” salary configurations that contributed to the 2008 market crash. The measure is also calculated to address the burgeoning income gap between the wealthiest Americans and those enduring the plights of low income and poverty.

If you are concerned about compliance with SEC mandates and would like to discuss your company’s obligations, please contact Willcox, Buyck & Williams, P.A. at 843-536-8050 in Florence or 843.461.3020 in Myrtle Beach.