SEC finally delivers on CEO pay ratio disclosure

It took five years, but now workers and shareholders will know how much a company's top executive makes compared to the average worker there.

SEC joins Teamsters in standing up to CEOs.

The Securities and Exchange Commission (SEC) approved the CEO pay ratio rule at a meeting today after years of discussions. The provision had been mandated as part of the Dodd-Frank financial reform law approved in 2010. More than 280,000 comments had been filed with the agency in favor of the measure.

Teamsters Secretary-Treasurer Ken Hall said approval of the rule was a long time coming, but worth the wait:

At a time when corporate profits are near an all-time high and income inequality is growing, employees and shareholders have a right to know whether companies are padding the wallets of executives at the cost of workers and the company’s bottom line. It’s time we learn from the past failings that helped cause the Great Recession.

The Teamsters and other unions have actively called on the SEC to implement the rule. According to an AFL-CIO study of CEO pay at S&P 500 companies, the average CEO earned 373 times more than the typical U.S. worker in 2014. In contrast, CEOs in 1980 made 42 times more than the average employee.

But that doesn't mean the provision is perfect. As Bloomberg noted:

In a nod to businesses such as Exxon Mobil Corp. that oppose the effort, the SEC will require the metric to be updated only once every three years and will allow companies to exclude as much as five percent of their foreign workers from the calculation. 

The SEC allowed for some discretion in determining the median pay of workers. Companies can use sampling to estimate the figure, rather than calculating it by tallying data from all of the payrolls across the company.

The new rule will make a difference, however. While the CEO pay ratio disclosure alone will not resolve income inequality in our country, it can help identify a huge source of the problem and inform how we want to shape compensation in corporate America.