A new proposed rule may have companies pulling out their calculators and crunching some numbers.
On Wednesday, regulators proposed the rule that will require public companies to make CEO compensation more transparent—and it’s drawing some controversy. The proposed rule was originally proposed in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and it mandates that public companies to report the wage gap between their CEOs and rank-and-file employees.
Yesterday, three of the five members of the SEC voted in favor of the proposal. The commission wants companies to provide two more data points in their filings: median of the total compensation for all employees excluding the CEO, and the ratio between that number and the CEO’s annual total compensation.
The purpose of the law is twofold, according to industry experts: It will likely put pressure on companies to slow the pay increases of their CEOs, and it will give shareholders a more transparent view of their investment.
While those in favor of the proposed rule laud the transparency it brings to investors, critics complain it goes too far, saying it’s too complex, time-consuming and expensive.
Since the financial crisis started in 2008, executive compensation has come under intense scrutiny, and for good reason. According to the Economic Policy Institute, Executive compensation is now more than 277 times an average worker’s pay compared with just 20 times in 1965.
“Clearly we have a steep uptrend,” SEC Commissioner Luis A. Aguilar told the New York Times DealBook.