In 2015, the Obama administration’s Securities and Exchange Commission (SEC) adopted a rule stipulating that public companies would need to disclose the ratio between their employees’ median pay and that of their CEO, starting in the 2017 fiscal year. The rule, mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, was intended to increase transparency and reduce income inequality within the country’s largest, most profitable corporations.
Once Donald Trump was elected president, however, most believed the rule would be changed or repealed, especially after Trump signed an executive order calling for a review of Dodd-Frank regulations.
Chairman of the SEC Michael Piwowar, who publicly expressed criticism of the regulation after it was passed, announced an open comment period earlier this year for companies affected by the rule to provide feedback and directed his staff to make adjustments based on the feedback. It seemed all but certain that companies would never have to release this information, which would be a potential lightning rod for controversy.
At this point, however, it seems the rule is here to stay, at least for the time being. While the House of Representatives did pass a repeal of the rule in June, experts believe the possibility of that bill making it through the Senate has diminished greatly, given the administration’s more pressing priorities. That means for at least this year, public companies will need to start—or continue—planning for how to calculate and communicate their median employee’s income, as well as how to handle the backlash that will likely ensue from reporting it.
“In January, the betting man in me said this will be repealed in 2017,” David Wise, a senior client partner at Korn Ferry Hay Group, told the Washington Post. “Here in July, the betting man in me says this will be in place next year, only because of the traffic in the queue. You’ve got some big, big trucks in front of you.”
Though most companies were against this new regulation, it still has a lot of support. In December of 2016, the city of Portland, Oregon took the idea a step further, approving a tax for companies whose chief executives earn over 100 times their median employee’s salary. This past February, a group consisting of union leaders, pension fund managers, municipal treasurers, activist investors, and consumer advocacy groups all voiced their support for the reporting of this pay ratio in a letter to the SEC.
It’s looking like those groups, along with any others hoping for greater transparency and understanding of the divide between executive pay and average employee compensation, will get their wish, at least in the short run, as the current administration has prioritized healthcare and tax code reform and likely won’t be able to get to this in time before the reporting deadline in early 2018.