House Financial Services Committee Approves Pay Ratio Repeal

Executive Pay Plan Design

This week, the House Financial Services Committee voted along party lines to approve legislation sponsored by Rep. Bill Huizenga (R-MI) which would repeal the Dodd-Frank pay ratio in its entirety, marking the third consecutive session of Congress in which the Committee has approved repeal and sent it to the full House of Representatives.  Reflecting the increased influence of progressive politicians such as Senator Elizabeth Warren (D-MA) and thus the ongoing shift away from business by Democrats on the Committee, this is the first time that the measure did not enjoy bipartisan support.  The Committee debate over the measure, therefore, was even more raucous and testy than during previous markups on the bill.  Democrats argued that the bill would lead to increased inequality while Republicans hammered back accusing Democrats of sacrificing jobs for the sake of scoring political points, given that the pay ratio disclosure does not address the underlying causes of inequality.  Rep. Huizenga cited the SEC's own estimates of compliance costs which exceeded $1.3 billion in the first year alone.  Echoing SEC Chair White, Huizenga also noted that the pay ratio was one of the provisions that is "more directed at exerting societal pressure on companies to change behavior rather than to disclose financial information that primarily informs investment decisions" and "that is what the SEC is supposed to do, it is supposed to protect investors."  Democrat Keith Ellison (D-MN), the lead supporter of the pay ratio in the House, argued that the provision was helpful to investors, citing a purported "number of reports" which tied a higher CEO pay ratio to risky decision making, even though large investors and even ISS have dismissed the ratio as immaterial to their evaluations.  The success of pay ratio repeal in the 114th Congress is uncertain in light of the political climate in Washington and the threat of a Presidential veto.  However, the fact that repeal has passed the House Financial Services Committee in three consecutive Congresses and legislation has been introduced in the Senate creates a valuable political precedent, depending on the outcome of the next election.