After Five Years, a Victory for CEO-Worker Pay Ratio Disclosure

The sourest person in the nation’s capital today just may have been Daniel Gallagher, one of the five commissioners who set policy for the Securities and Exchange Commission, the top federal watchdog over companies that trade on Wall Street.

Over Gallagher’s surly objections, an SEC majority today adopted regulations that will finally allow the enforcement of the Dodd-Frank Act provision that requires corporations to annually disclose the ratio between their CEO and median worker compensation.

Dodd-Frank became law five years ago. Corporate America has been battling ever since to keep the act’s pay ratio mandate from going into effect.

SEC commissioner Gallagher regurgitated this morning all the core arguments that corporate lobbyists have been making over the course of their five-year effort to delay and destroy the mandate. Pay ratio disclosure, he fulminated, would offer up only “immaterial” information “highly likely to be misused.”

Pay ratio disclosures, Gallagher went on, would be “worthless for anything but naming and shaming” the upstanding business leaders who deign to serve as our nation’s corporate CEOs.

But Gallagher, by the end of today’s long-awaited SEC session, would actually turn out to be only the second-sourest policy maker in Washington. Honors for the top sour slot would go to his fellow Republican SEC commissioner Michael Piwowar, who ended this morning’s SEC debate over pay ratio disclosure by accusing the SEC majority of “giving in” to the “bullying” of “Big Labor.”

And what heinous “bullying” did “Big Labor” actually engage in? The AFL-CIO and other unions had the temerity to ask Americans to urge the SEC to end its foot-dragging and allow the law of the land — in this case, section 953(b) of the Dodd-Frank Act — to go into effect.

Today’s 3-2 SEC commissioner vote puts into place regulations that should allow some robust disclosure on the pay ratio front. Over 3,500 major American corporations will now have to compute a median compensation for all their workers — part-time, seasonal, and foreign included — and compare that pay to their CEO compensation on an annual basis.

The new regulations approved today do come with some minor loopholes. (Heather Slavkin Corzo, investment director at the AFL-CIO, told’s Isaiah J. Poole about “some weaknesses” in the rule, such as the ability of retailers with seasonal workforces to take a one-day snapshot at a time when the pay ratio would look more favorable rather than an annual average.) But none of these sops to corporate pressure, leading critics of corporate CEO pay seem to agree, will let corporations significantly off the hook.

Under the newly adopted SEC disclosure rule, for instance, if a corporation’s foreign employees account for 5 percent or less of its total employees, the company “may exclude all of those employees when making its pay ratio calculations.” But that exclusion would make only a marginal difference in any ultimate CEO-median worker ratio.

So the “ideologues and special-interest groups” in favor of CEO-worker pay disclosure, as SEC commissioner Gallagher pronounced in full-pique mode, have won — for now. But both Gallagher and Piwowar appear to believe that the pay ratio disclosure fight may yet have another round. They both hinted at the legal action corporate foes of ratio disclosure may now take. Forcing corporations to reveal their pay ratios, Gallagher would explicate in some convoluted logic, may violate the First Amendment rights of our nation’s corporate persons.

Could some federal court actually agree with that claim? Stranger things have happened. Several SEC rules for enforcing Dodd-Frank provisions have been overturned by federal courts, including the proxy-access rule designed to help shareholders get their own nominees onto corporate boards.

The “good” news here? The new SEC rule adopted today doesn’t have the Dodd-Frank pay ratio disclosure mandate going into effect until 2017, a timing that means that corporations won’t have to actually reveal any ratios until annual shareholder meetings take place in 2018. A court challenge to the rule, as a result, won’t be likely to delay the start of pay ratio disclosures any more than the SEC already has.

Sam Pizzigati edits Too Much, the Institute for Policy Studies online monthly on excess and inequality. His latest book: “The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970” (Seven Stories Press).

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