According to Bloomberglaw.com, the Securities Exchange Commission (SEC) implemented an interesting new rule in September that requires public companies to disclose the ratio of their CEO pay to median worker compensation. And many seem less than pleased about it.
With this new rule, all public companies will have to disclose to the SEC the median total compensation of all employees aside from the CEO, the compensation of the CEO, and the ratio between the two.
The new rule is mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law in 2010 as a means to create more transparency in the financial services industry in response to the 2008 financial crises.
The rule has been put in place to give investors information on income disparity between CEOs and their employees. This disparity has been said to be increasing within the U.S. and it is believed by many that it links to employee morale and productivity, which directly influences a company’s profitability.
However, not everyone agrees with the SEC. Many business organizations say that this information would in fact provide very little information on a company’s profitability and would merely reflect the size and composition of a company’s workforce. Many are also adding that the benefits of this rule would be heavily outweighed by the effort it would take to calculate median employee compensation.
It seems that these complaints will fall onto deaf ears at the SEC, and, because the rule is mandated by the Dodd Frank Act, a court battle will most likely support the rule. Companies should expect to begin to have to disclose this information sometime in 2016.