President Donald Trump named Michael Piwowar as acting chair of the Securities and Exchange Commission shortly after his inauguration. Piwowar, one of the SEC’s five commissioners since 2013, quickly flexed his acting chair muscles - on one of the agency’s most high-profile recent decisions.
Back in August 2015, an SEC commissioner majority had approved a long-awaited set of regulations for enforcing an innovative 2010 Dodd-Frank Act provision on corporate pay disparities. The provision requires corporations to annually disclose the ratio between their CEO and median worker compensation.
Piwowar fiercely opposed the new disclosure rule, but found himself outvoted, and the disclosure mandate officially went into effect January 1. Corporations are now preparing to calculate their first required ratio disclosures. These first required ratios were set to go public early in 2018.
Or so everyone expected until early February, when acting chair Piwowar threw a monkey-wrench into the works. Corporations across the nation, the acting chair pronounced, “have begun to encounter unanticipated compliance difficulties.” These “unexpected challenges,” Piwowar continued, justified still another public comment period on the ratio rule, and he proceeded to invite stakeholders to share their beefs about their new burden.
That invitation, Piwowar no doubt expected, would bring forth incredibly moving corporate testimonies that would vindicate his opposition to disclosing pay ratios. A nation suitably impressed by these tales of corporate woe would surely then understand why the SEC must never allow CEO-worker pay ratios to see the light of day.
The deadline for Piwowar’s invitation to submit new comments on pay-ratio disclosure came last week. The tsunami of corporate tales of woe that Piwowar expected? That didn’t come. What did: a deep torrent of responses — from experts and grassroots business circles alike — supporting pay-ratio disclosure and demanding that Piwowar end his silly stalling stunt and start enforcing the law.
Count Lynne Dallas, a law professor at the University of San Diego, as one of those experts. She pointed out in her detailed response to Piwowar’s request for comments that almost seven years have passed since the Dodd-Frank Act wrote the pay-ratio disclosure mandate into law. Firms now complaining that they’ve “begun to encounter” difficulties had plenty of time to get their ducks in order.
Another expert, Iowa State University professor of accounting Sue Ravenscroft, noted in her analysis that corporations have claimed repeatedly that the cost of calculating pay ratios would be “extraordinarily onerous.” That claim, she observed, rates as “downright laughable.”
All companies, Ravenscroft explained, give employees individual tax forms and report on individual employees whenever remitting withholding taxes to the government. No corporations should have any problem compiling this “readily available information” on worker pay.
“Perhaps they need,” Ravenscroft concluded, “some undergraduate interns to teach them about Excel spreadsheet capabilities.”
Who Needs Pay Disclosure?
Comments from the business grassroots shared this expert's displeasure over Piwowar’s maneuvering to ditch pay-ratio disclosure.
“I am disappointed that you are reconsidering this rule,” wrote Gina Webber, a small business owner, in her public comments to the SEC about the rule. “I believe the rule should be kept and ENFORCED. Trump, in his campaign, denounced outrageous CEO pay, so it would be quite hypocritical if this Administration undermined CEO pay transparency.”
Another local businessperson, general contractor Mark Urban, stressed in his response the vital importance of encouraging narrower pay gaps between executives and employees.
“As a business owner,” he told the SEC, “having a low disparity between CEO and workers pay is critical to success of a company.”
Other Americans with business experience dismissed the standard corporate rationalizations for opposing the SEC pay-ratio disclosure rule.
“I have read some of the comments submitted by corporate officers who, not at all surprisingly, oppose the rule, largely on the stated grounds of compliance burden and expense,” observed Robert Conklin. “Based on my 45 years experience in two careers, first as a securities lawyer and later as CEO of a small privately held corporation, I believe that such burdens and costs are being greatly exaggerated.”
Piwowar’s move to reopen the ratio-disclosure debate also brought feedback - and pushback - from public interest and investor groups. In a joint March 22 letter, over 100 unions, pension funds, state treasurers, and consumer advocacy organizations called the new SEC disclosure regulations a “thoughtful, balanced, and carefully crafted” rule that “will provide material information to investors.”
Lawmakers have chimed in, too. In one letter to Piwowar, eight U.S. senators describe themselves as “extremely troubled” by his latest attempt to “discredit” the new ratio rule and “generate momentum to repeal” it.
Piwowar’s stab at creating that “momentum,” adds Sarah Anderson of the Institute for Policy Studies, has clearly blown up in his face. As of March 22, only four companies had bothered to “share their problems” with pay-ratio disclosure on the SEC’s online comments page.
The momentum globally, Anderson adds, is clearly running toward requirements that corporations reveal their executive-worker pay ratios. India is already enforcing pay-ratio disclosure, and in the UK even the current conservative prime minister, Theresa May, supports the idea.
Back in the United States, meanwhile, the city of Portland has enacted an ordinance that ties corporate tax rates to corporate pay ratios, and a number of other localities — and states — are considering similar measures, all inspired by the Dodd-Frank ratio disclosure mandate.
What's At Stake
Acting SEC chairman Piwowar could continue to delay that mandate’s enforcement. But he has absolutely no mandate from the American people, everyone can now see clearly, to keep stalling.
The chairmen of the SEC, the federal agency meant to watch over over Wall Street and the corporations that trade on it, have been a varied lot down through the years. Some have been public-spirited champions of average investors. Others have put their priority on keeping Corporate America’s high and mighty happy. Piwowar most definitely falls in the latter category.