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SEC approves CEO pay-ratio rule

Disclosures were the subject of a heated debate.

Please note: This item is from our archives and was published in 2015. It is provided for historical reference. The content may be out of date and links may no longer function.

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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.