In 2015, the US Securities and Exchange Commission adopted a new rule that would require public companies to disclose the ratio between the compensation of the CEO and the median annual compensation of every other employee in their proxy statements, starting with the 2017 fiscal year. The rule, provided for in the 2010 Dodd-Frank Act aimed at reining in morally hazardous behavior in the financial sector, is one of numerous regulations instated by former President Barack Obama that his successor Donald Trump and the Republican majority in Congress were expected to try to unwind.
In February, Trump ordered a comprehensive review of the regulations created by Dodd-Frank, and Republicans in the House of Representatives are considering legislation that would largely do away with them. With both the executive and legislative branches in Republican hands, the Trump administration can delay implementation of this rule until Congress acts to repeal it, but Reuters reports that some major institutional investors are calling on the SEC not to do so:
In a joint letter dated Wednesday, more than 100 unions, pension funds, activist investors, state treasurers and consumer advocacy groups urged Acting U.S. Securities and Exchange Commissioner Michael Piwowar not to delay the implementation of the rule. …
It was signed by people including AFL-CIO President Richard Trumka, Illinois State Treasurer Michael Frerichs, New York City Comptroller Scott Stringer, CalPERS Investment Director Anne Simpson and Trillium Asset Management Senior Vice President Jonas Kron, among many others.
That activist investors are participating in this push is noteworthy, particularly given the increasing interest we are seeing among investors regarding talent issues, including compensation.
Additionally, even if the US federal government’s pay ratio rule disappears, other jurisdictions are moving ahead with similar requirements: Portland, Oregon, for instance, voted in December to impose a tax on companies doing business in the city whose chief executives earn more than 100 times their median employee. The UK government is also moving ahead with a policy platform of corporate governance reform that includes a requirement to publish the CEO-median employee pay ratio.