Publicly traded companies would have to disclose the pay gap between the chief executive and rank-and-file workers under a controversial measure approved by Washington regulators Wednesday.
In a 3-to-2 vote, the Securities and Exchange Commission moved the proposed rules to the comment stage, despite vehement objections by business groups and the regulator’s two Republican commissioners.
Critics of the measure — which is backed by unions and attacked by pro-business groups like the US Chamber of Commerce — complain the data needed to create the gap numbers would be too costly to compile and of little value to investors.
“Proponents have acknowledged that the sole objective of the pay disclosure rule is to shame CEOs,” said Michael Piwowar, the newest Republican on the five-person SEC leadership panel.
“But the shame from this rule should not be put on CEOs — it should be put on the five of us.
“Shame on us for putting special interests ahead of investors,” Piwowar said.
The 45-year-old economist blasted the proposed rule as having “nothing to do with any part of the [SEC’s] core mission of protecting investors, maintaining fair, orderly, and efficient markets, and promoting capital formation.”
The pay gap between CEOs and the average US worker has grown from 195-to-1 in 1993 to 354-to-1 in 2012, according to a report from the left-leaning Institute for Policy Studies.
Companies will still be required to compare median pay with their CEO’s total annual compensation, as called for in Dodd-Frank. But under the SEC’s proposal Wednesday, companies will be permitted to determine whether to include all employees or just a sampling.
International companies, for example, may sample only US workers rather than all workers.
Supporters of the rule, including unions like the AFL-CIO, have argued that comparing CEO pay to that of the rank-and-file will offset the ugly spiral of pay envy that comes from CEOs only seeing what other CEOs are paid.
At Whole Foods Market, which has been disclosing rank-and-file pay alongside CEO pay for years, executives derided complaints that the process will be too costly and time-consuming.
“It’s a relatively straightforward process that takes a few days,” Mark Ehrnstein, a vice president at Whole Foods told the Wall Street Journal last year.
Aaron Boyd of compensation research firm Equilar said he expects retailers to show the biggest gaps between executive pay and rank-and-file pay when the rule is enacted, possibly by early next year.
Indeed, Payscale.com, a Seattle company that compiles and sells pay data, lists Walmart at the top of its pay disparity list, with CEO Michael Duke earning a whopping 1,033 times what its average worker does.
At Target, the pay gap is 597-to-1, while at the Walt Disney Co., CEO Bob Iger’s pay is 557 times that of the average employee.
Boyd said that while he welcomes the new data, he is skeptical that the numbers will serve to lower spiraling executive pay.
“I’m not sure it’s going to change anyone’s opinion as to whether the executive deserves a certain amount,” he said. “I think it won’t move the needle in how companies pay their CEOs.”