US SEC proposes disclosure of CEO-worker pay difference

Reuters

* Rule would require disclosure of median worker pay to CEO

* Labor groups favor rule, say it will help investors

* Sharply divided SEC issues release for public comment

* Another rule: SEC to oversee municipal financial advisers

By Sarah N. Lynch

WASHINGTON, Sept 18 (Reuters) - U.S. corporations will needto disclose how the paychecks of their chief executive officerscompare with those of their workers under a new proposalreleased on Wednesday by a sharply divided U.S. Securities andExchange Commission.

With CEOs of many U.S. companies earning hundreds of timesmore than their workers, unions and labor advocates arechampioning the SEC's CEO pay-ratio rule. They say disclosureswould help investors identify top-heavy compensation models.

But business groups such as the U.S. Chamber of Commerce andthe Center on Executive Compensation oppose the measure, callingthe data costly to compile and of little use to investors.

Among U.S. companies with the highest-paid CEOs are Oracle, Walt Disney, Viacom and Starbucks, whose CEOs in 2012 earned between $28 million and $96million, according to the compensation data provider Equilar.

The SEC declined to address the chief complaint by companiesand trade groups who wanted corporations with global operationsto be allowed to report median pay only for U.S. employees.

The 2010 Dodd-Frank Wall Street reform law requires thedisclosures and gives the SEC little wiggle room for changesdemanded by critics. Still, the SEC tried to minimize compliancecosts by giving companies flexibility in methods of calculatingthe total compensation of employees.

For instance, companies could use statistical sampling, anoption that the SEC's Chief Economist Craig Lewis said couldreduce compliance costs. The SEC would also permit annualizedfigures for permanent employees who did not work a full year,such as new hires.

Companies say investors have little appetite for suchinformation, citing failed efforts by shareholder activists toadopt resolutions requiring CEO pay-ratio disclosures.

SEC Chair Mary Jo White said the deep divisions over how toimplement this rule were evident in the more than 20,000 commentletters the agency had received on the subject.

"The staff has drafted and recommended a proposal that wouldprovide companies significant flexibility in complying with thedisclosure requirement while still fulfilling the statutorymandate," White said of the plan.

The opinions of the five SEC commissioners reflected thedivisions between organized labor and corporate America. Thenewest Republican Commissioner, Michael Piwowar, said before thevote that the SEC had no business even considering the rule.

"Proponents have acknowledged the sole objective of the payratio is to shame CEOs, but the shame from this rule should notbe put on CEOS- it should be put on the five of us," he said.

"Shame on us for putting special interests ahead ofinvestors."

Commissioner Luis Aguilar, a Democrat who supports themeasure, said the disclosures are important. "As owners ofpublic companies, shareholders have the right to know whetherCEO pay multiples reflect CEO performance."

He added that "Pay ratio disclosure can provide a valuablenew perspective for executive compensation decisions."

PAY GAPS

Equilar's analysis of 2012 data showed the highest-paid CEOwas Oracle's Lawrence Ellison with $96.1 million.

The CEO ratio pay proposal is one of two major outstandingregulations mandated by Dodd-Frank that the SEC tackled atWednesday's public meeting. The agency also approved along-awaited rule to bring the financial advisers ofmunicipalities under federal oversight.

After the collapse of the big investment bank LehmanBrothers five years ago, the 2007-2009 financial crisis promptedpublic outrage over high CEO pay at Wall Street firms bailed outby taxpayers. Congress passed the Dodd-Frank law in response.

A recent report by the left-leaning Institute for PolicyStudies, which analyzed data on the highest-earning CEOs over a20-year period, found that those whose companies collapsed orreceived government bailouts have held 112 of the top 500 slots.

The report said the pay gap between CEOS and the averageAmerican worker has grown from 195-1 in 1993 to 354-1 in 2012.

Compensation consultants warned about drawing conclusionsbased on pay ratios, even among companies that are directcompetitors.

"An employer with a workforce that has a larger proportionof lower-paid employees, or that has significant overseasoperations in lower-paid locations, may have a pay ratio thatsuggests greater disparity in pay than other employers evenwhere the CEO compensation is lower," said Regina Olshan, apartner with Skadden, Arps, Slate, Meagher & Flom LLP.

"Further, those same companies will likely have a greateradministrative burden to comply with the disclosurerequirements."

Proponents of the CEO pay ratio rule lauded the measure.

"The simple fact is that large pay disparities between CEOsand their employees affect a company's performance," saidAFL-CIO President Richard Trumka. "When the CEO receives thelion's share of compensation, employee productivity, morale andloyalty suffer."

Timothy Bartl, president of the Center on ExecutiveCompensation, said he will fight for Congress to overturn thatprovision in Dodd-Frank.

"The Center strongly opposes the pay ratio requirement willcontinue to work for its repeal in Congress," he said.

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