Why Is SEC Refusing To Follow The Law And Issue CEO Pay-Ratio Rules?

Dave Johnson

One part of the 2010 Dodd-Frank Wall Street Reform law requires the Securities and Exchange Commission (SEC) to set up rules requiring companies to disclose the median annual total compensation of all employees, the total annual compensation of the chief executive officer, and the ratio of the median employee pay to the CEO’s pay. It’s 2015 and the agency still has not done so.

In December, 16 Senators sent a letter to SEC Chair Mary Jo White asking for the SEC to vote on the final pay-ratio rule before the end of the first quarter of 2015.

From the letter:

Pay ratio disclosure helps investors evaluate the relative value a CEO creates, which facilitates better checks and balances against insiders paying themselves runaway compensation. When a company’s performance improves but only the CEO is rewarded, for example, investors should know, so they can ask what kinds of incentives this creates for the company’s future performance. Or when a CEO asks for a raise while giving other employees a pay cut, investors should have this information to help them evaluate whether this is value creation or simply value capture by insiders – especially in an environment where incomes for the top 1 percent have grown by more than 86 percent over the last 20 years while incomes for everyone else have grown by less than 7 percent.

(Click here for the full text of the letter.)

The end of the first quarter is two weeks away. There’s still no CEO Pay-Ratio rule.

Timeline and Revolving Door

What is the reason for the delay/refusal? Last month’s post, “Is The SEC Defying Dodd-Frank Law On Pay-Ratio Rule?”, included a timeline and asked:

Is the SEC simply defying the law? Is everyone at the SEC hoping for a lucrative “revolving door” job offer from Wall Street, as long as they “play ball”?

Are SEC regulators simply “playing ball,” and hoping for lucrative corporate rewards when they leave government? As more and more time passes, it looks more and more like this is the case.

How does the revolving door work? In a post from 2012, Matt Stoller wrote about how the real money is made after leaving government. If “you were a team player, then you’ll have plenty of money and opportunity.” In last year’s post, “Eric Cantor Goes To His Reward,” I wrote about how Eric Cantor —  Wall Street’s BFF while in Congress — took two whole weeks after leaving office to take a job where he “will receive a huge, fat, lucrative, awe-inspiring, 1-percent-making, mansion-jet-and-yacht-buying, zillion-figure paycheck from his Wall Street/corporate constituents,” as vice chairman and managing director of investment bank Moelis & Co. I wrote, “It typically takes longer than two weeks to negotiate a senior position like this one, if you know what I mean.”

Wall Street takes good care of its friends in government. Is this what’s going on at the SEC? Previous SEC head Mary Schapiro certainly did well for herself after leaving the position. A while after that, even more. As NYTimes’ Dealbook put it in, “Former Chief of S.E.C. to Shift Consulting Job,”:

Like many S.E.C. officials before her, Ms. Schapiro spun her government résumé into a lucrative private sector role at Promontory, which has advised some of the world’s most powerful corporations and banks, including Morgan Stanley and the Vatican Bank.

The SEC can just issue the rule. So why hasn’t it?

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