House Committee Passes Bills Exempting Small Companies From Pay Ratio, Expanding SEC Cost-Benefit Analysis

February 24, 2012

In a rare demonstration of swift, bipartisan movement, the House Financial Services Committee approved, by a vote of 54 to 1, legislation which exempts newly public companies from certain SEC regulations, including the say on pay mandate and the pay ratio disclosure.  The concept behind the “Reopening American Capital Markets to Emerging Growth Companies Act,” (H.R. 3606), sponsored by Representative Stephen Fincher (R-TN) and Jay Carney (D-DE), was endorsed by President Obama in his State of the Union address.  Rep. Fincher explained that “[s]mall businesses are the real job creators and this bill will help them move forward with their goals so they can expand, hire employees, and put Americans back to work.”  Representative Keith Ellison (D-MN), who has been a primary defender of the pay ratio legislation, offered several amendments to the bill.  The first, which was withdrawn, would have eliminated the pay ratio exemption for emerging growth companies.  The second, which was defeated, would have required these companies to hold say on pay votes, rather than providing them with a five-year exemption under the statute.  The third, which was approved, clarified that though companies may receive an initial exemption, say on pay votes must be held within a year after outgrowing the emerging growth company status.  A Senate companion bill (S. 1933) sponsored by Sen. Charles Schumer (D-NY), is also expected to move quickly, despite heavy opposition from Americans for Financial Reform, an organization of activist investors and social organizations headed by the AFL-CIO.  The legislation is notable because it advances the discussion of the burdens of the pay ratio for all companies.  In a related development, the same day, the Committee also approved, by a vote of 30 to 26, legislation (H.R. 2308) by Capital Markets Subcommittee Chairman Scott Garrett (R-NJ)  that would require the SEC to conduct a more robust cost-benefit analysis on each new regulation.  This study is meant to ensure that the costs of such regulation do not outweigh the benefits, and it would seek to make sure that all new and existing regulations are consistent and written in a plain manner that is easily understood.