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SEC Commissioners Split on CEO Pay Vote

On September 18, the SEC voted 3-2 to propose a new rule that would require public companies to disclose the ratio of the compensation of its CEO to the median compensation of its employees.  This rule was required by the Dodd-Frank Act.

SEC Chair Mary Jo White noted that the rule will not prescribe a specific methodology for companies to calculate a “pay ratio,” but instead would give companies the flexibility to determine the median annual total compensation of its employees that best suits each company.

This was the first open rulemaking meeting that the new Commissioners Michael Piwowar and Kara Stein participated in, and there was a blunt debate on whether the rule is an appropriate expenditure of the SEC’s time and resources.

Piwowar, the newest Republican appointee, argued that “the commission should not be spending any of its limited resources on any rulemaking that unambiguously harms investors, negatively affects competition, promotes inefficiencies, and restricts capital formation.”

White, however, stressed that the pay ratio rule is one of the Dodd-Frank mandates that “have been worked on and thought about by the [SEC] staff for a long-time.”

The approval vote of 3-2 was made along party lines, with Republican Commissioner Daniel Gallagher releasing a public dissenting statement after the vote. During the meeting, Commissioner Luis Aguilar provided the background and context for decisions on executive compensation

The proposal will have a 60-day public comment period. A copy of the pay ratio rule proposal is available here.