After five years of waiting, the Securities and Exchange Commission (SEC) has finally adopted a rule requiring most public corporations to publish the difference between the salary of their CEOs and those of their average worker.
The regulation was called for in the Dodd-Frank financial reform law approved in 2010, but the SEC dragged its heels in developing it because of stiff opposition from corporations that complained the requirement would be time consuming. It’s also possible that some executives don’t want to reveal the ratio between their pay and those working under them because the gaps in many cases will be huge. One think tank, the Economic Policy Institute, says CEOs were paid 300 times more than their employees in 2013. The ratio 50 years ago was only 20 to 1.
Supporters of the rule, mainly Democrats, want to point out the growing income inequality in America between the boardroom and the factory floor. “We have middle-class Americans who have gone years without seeing a pay raise, while CEO pay is soaring,” Senator Robert Menendez (D-New Jersey), who helped insert the pay ratio rule into Dodd-Frank, said according to The New York Times. “This simple benchmark will help investors monitor both how a company treats its average workers and whether its executive pay is reasonable.”
The SEC vote was 3-2, with the commission’s two Republican members opposing it.
The requirement isn’t scheduled to go into effect until 2017. However, the U.S. Chamber of Commerce might challenge the rule in court.