GOP Leaders Urge SEC to Ditch Pay-Ratio Rule

Three Republican lawmakers tell Mary Jo White that the proposed rule would be unduly costly and detract from more important SEC priorities.
Matthew HellerNovember 25, 2014
GOP Leaders Urge SEC to Ditch Pay-Ratio Rule

Three top Republican lawmakers have made a last-ditch attempt to get the U.S. Securities and Exchange Commission to scrap a new rule that would require public companies to disclose the ratio of CEO compensation to the median compensation of their employees.

The commission voted in September 2013 to adopt the so-called pay-ratio rule, which is required as part of the Dodd-Frank Act’s financial reforms. SEC Chair Mary Jo White told a Senate panel earlier this fall that it was her “hope and expectation” to complete the regulatory process by year’s end.

But in a letter to White on Monday, House Financial Services Committee Chairman Jeb Hensarling, Texas Republican, joined by fellow Republicans Reps. Scott Garrett and Bill Huizenga, disputed that the “absence of a median pay ratio disclosure was a proximate cause of the financial crisis” and warned that the proposed rule would be unduly costly and detract from more important SEC priorities.

A Better Way to Do Ecommerce

A Better Way to Do Ecommerce

Learn how Precision Medical leveraged OneWorld to cut the cost of billing in half and added $2.5M in annual revenue.

“Prioritizing completion of the pay ratio rule will continue the SEC’s practice of misallocating limited resources to non-essential projects rather than completing rulemakings and other responsibilities central to fulfilling its statutory mission,” the letter said.

The rule is intended to give investors more disclosure about pay disparities at big companies. Rather than prescribe a specific methodology for companies to use in calculating a pay ratio, it allows companies to determine the median annual total compensation of their employees in a way that best suits their particular circumstances.

“This proposal would provide companies significant flexibility in complying with the disclosure requirement while still fulfilling the statutory mandate,” Mary Jo White has said.

But as the Wall Street Journal reports, Republican lawmakers and some regulators believe it “won’t provide useful information about a company’s financial health, will prove too costly and will be used primarily to shame chief executives.”

The trio of GOP congressmen asked White in their letter for a detailed accounting of the funds and man-hours spent on the pay-ratio rule and criticized the SEC for failing to complete other Dodd-Frank requirements aimed at addressing the root causes of the financial crisis.