Six weeks ago, the Securities and Exchange Commission came out with a proposed rule to implement the Dodd-Frank Act requirement that public companies disclose the ratio of their CEO’s pay to their median employee’s pay.
Corporate leaders and lobbyists have mounted a furious campaign of protest, spearheaded by such groups as the Financial Services Roundtable, the U.S. Chamber of Commerce, and the Securities Industry and Financial Markets Association. But popular support for the proposal has been overwhelming. During an initial consultation period, the SEC received more than 20,000 letters, overwhelmingly in favor of the pay-ratio requirement. Since the Commission issued its proposed rule in September, more than 116,000 individuals and organizations, including Americans for Financial Reform, have submitted letters urging the SEC to stand firm.
Support has come not only from ordinary citizens, public-interest groups and unions (see partial list below), but from a number of investor organizations, including the California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System, , the Forum for Sustainable and Responsible Investment, and Walden Asset Management. The New York City Comptroller’s office has also voiced its support, while the Council of Institutional Investors (CII), without taking an official stand on the rule itself, has written to the SEC to contest corporate claims about the supposedly burdensome difficulty of calculating such a ratio.
To help the Commission get an investor perspective on this point, CII consulted members representing public, corporate and union employee benefit plans. It found a “broad consensus… in support of the [SEC’s’] approach… The members generally agreed that the Commission has done an admirable job [of striking] an appropriate balance between providing potentially useful information to investors and limiting company compliance costs.”
Congress established the pay-ratio requirement partly to address investor concerns that existing disclosure rules – limited to executive compensation – may have encouraged companies to focus on peer-to-peer comparisons when setting CEO pay. This is a yardstick that, as AFR points out, “helped lead to increasingly higher levels of CEO pay.”
In recent decades, overall CEO compensation has grown to nearly 300 times what typical employees make. Between 2011 and 2012, executive compensation rose 16 percent, reaching a median level of $15.1 million.
In the financial sector, runaway pay for executives and traders, linked in many cases to short-term stock or profit gains, helped fuel the pervasive misconduct that led to the 2008 meltdown, with its devastating and ongoing consequences. The 2011 report of the Financial Crisis Inquiry Commission pointed to such pay practices as a significant cause of the crisis. In the most recent of its annual Executive Excess reports, the Institute for Policy Studies notes that the financial sector has been home to many of the highest-paid CEOs of the past few decades, including the former chiefs of a number of firms whose risk-taking and risk concealment helped bring on the meltdown.
Letters and statements of support for the SEC proposal have come from (among many others):
- Americans for Financial Reform
- American Federation of State, County and Municipal Employees
- CtW Investment Group
- Institute for Policy Studies
- Interfaith Center on Corporate Responsibility
- International Brotherhood of Teamsters
- Laborers International Union of North America
- Public Citizen