The SEC approved a new rule requiring U.S. public companies to disclose the ratio between their CEO's compensation and that of their median employee.
The rule, passed in a 3—2 vote, implements Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203, some five years after the law was passed. Companies will now be required to reveal the following:
- The median of the total annual compensation of all their employees except the CEO.
- The annual total compensation of the CEO.
- The ratio of the two amounts.
The pay-ratio proposal generated what SEC Chair Mary Jo White called "a contentious and, at times, heated dialogue."
Debate over the pay-ratio requirement intensified after the SEC proposed the new rule in 2013. Proponents of the changes argued that knowledge of the CEO-employee pay ratio would provide investors with information helpful in making investment decisions and exercising their shareholder rights, especially in cases where they have a say on executive pay. Opponents of the measure countered that the disclosures would add no information of value and that they would be expensive to implement.