The actual provision of the law is 108 words. The gist: The Securities and Exchange Commission requires corporations and banks that it supervises to disclose in their annual reports the “annual total compensation of the chief executive officer,” the “mean of the annual total compensation of all [other] employees” and the ratio between the two.
Yet five years after those words became law as part of the Dodd-Frank financial reform legislation, the SEC is still making excuses for not issuing regulations to enforce them.
It took until two years ago for the SEC to issue its first proposed rules to enforce this provision. Yet deadline after deadline continues to pass without final rules. The SEC says it can’t decide whether to include foreign workers or how to count part-time employees, but the truth is much simpler: People at the SEC think the rule is a distraction.
According to Commissioner Michael S. Piwowar, “the rule has nothing to do with any part of the commission’s core mission of protecting investors.” Never mind that the job of the SEC is actually to enforce the law of the land; the fact is that the pay ratio does provide useful knowledge to investors.
While inequality has a devastating effect within our economy, it can also have dangerous results within a company. At the bottom, extreme disparities in pay can contribute to a toxic work environment, with more adversarial worker-management relations and decreased employee morale. These can produce increased turnover, lower productivity and a greater likelihood of strikes. At the top, there is similar danger that CEOs will focus on meeting quarterly stock expectations to pad their bonuses, at the expense of the longer range interests of the company. The pay ratio will give savvy investors a quick measure of potential trouble ahead. It will also arm efforts by shareholders to get control of soaring executive compensation packages.
But the commissioners at the SEC need to remember what their job is and who they work for. Their job is to enforce the law to the best of their ability, and to do so with all Americans in mind. The SEC should pass the rule not only because inequality within companies is a threat to investor returns but also because inequality overall is a threat to the livelihoods of all Americans and to the prosperity of our nation.
Many believe that the chair of the SEC, Mary Jo White, is sitting on the rule, hoping that the Republican Congress will eventually repeal the provision in the law. Sen. Elizabeth Warren (D-Mass.) and others have called on her to fulfill her promises to issue the regulation. White’s most recent promise is that the regulation will be issued by this fall. To insure that promise isn’t broken, and to remind the SEC who they work for, you can call the SEC, or sign this online petition,