WASHINGTON -- After a three-year wait, the Securities and Exchange Commission on Wednesday proposed a new rule that would require corporations to disclose the ratio of CEO pay to the compensation of an average worker.
The new rule was required under the 2010 Dodd-Frank financial reform law, but fiercely resisted by corporate lobbyists and the two Republican SEC commissioners. The law obligates companies to disclose the ratio of CEO compensation to the pay of a median worker.
Companies had complained that it would be too difficult or expensive to calculate median worker pay, although firms routinely publish labor costs in SEC filings. They had also sought to exclude foreign workers and part-time workers from the calculation, which would have reduced the gap between CEO pay and ordinary worker pay by removing lower-paid workers from the equation.
On Wednesday, the SEC proposed letting companies use a "statistical sampling" of workers to calculate the median worker pay, should tallying the pay of all employees prove too cumbersome. But the agency rejected appeals to limit the scope of the category to full-time domestic workers.
The Institute for Policy Studies, a liberal think tank, has been tracking the pay of CEOs at big companies for 20 years. Ratio of CEO pay to average worker pay rose from 195-to-1 in 1993 to 354-to-1 in 2012, according to IPS.
Sen. Robert Menendez (D-N.J.), who wrote the Dodd-Frank provision, applauded the SEC for getting the rule proposal out the door on Wednesday, but stopped short of endorsing the rule itself.
"I'm encouraged by the initial information out of the SEC today, but want to review the proposal to ensure that it strikes the right balance between flexibility and accountability," Menendez said in a written statement . "It's been over three years since Wall Street Reform required public companies to report on pay disparities between CEOs and their average workers, and since then the gulf between them has only grown."
The AFL-CIO, one of the most prominent backers of CEO pay transparency rules, was enthusiastic about the SEC's proposed language.
"We were very pleased with the SEC's proposal," AFL-CIO chief research analyst Vineeta Anand told HuffPost. "It was certainly worth the wait."
Anand said companies would have a hard time meaningfully gaming the statistical sampling to raise median worker pay artificially without drawing regulatory scrutiny, and emphasized the inclusion of foreign workers and part-time workers as important for maintaining a meaningful comparison between the executive suite and the rank-and-file.
The two Republican SEC commissioners, Daniel Gallagher and Michael Piwowar, voted against the proposed rule, which passed by a 3-2 margin. Piwowar was particularly critical of the law, which he said is designed to "shame" CEOs.
Conservative economists have traditionally embraced transparency as essential to free-market function, and have preferred disclosure to more overt government regulation of company activities.
Anand also urged the SEC to move quickly to approve a final rule. Regulators have missed dozens of statutory deadlines for implementing new banking rules under Dodd-Frank amid intensive Wall Street lobbying. While the CEO pay disclosure rule is one the simplest required by the 2010 law, it applies to all companies and does not have a specified deadline.