House Progressive Caucus Urges SEC to Complete Pay Ratio Rule

Executive Pay Plan Design

This week, 58 House Democrats sent a letter to SEC Chair Mary Jo White urging the Commission to complete the Dodd-Frank pay ratio regulations, stating "it's long past the time for the SEC to finalize this rule," but only seven of the 26 Democrats on the House Financial Services Committee signed the letter.  The letter, which was organized by Reps. Keith Ellison (D-MN) and Raul Grijalva (D-Ariz.) of the Congressional Progressive Caucus, is very similar to another letter sent by 14 Senate Democrats last December.  The letter states that "Boards of directors, investors, and other stakeholders need this information to better understand and assess CEO compensation."  Yet, directors are not requesting this information, and when the Center surveyed its Subscribers and HR Policy members, no company indicated that any of their top 10 investors had ever asked for pay ratio information.  The letter makes other unsupported assertions in support of a final rule.  It states, for example, "a lower ratio of CEO to median worker pay implies more investment in human capital and a longer-term outlook," and the disclosure "will allow investors to ascertain whether company employees are fairly compensated," but provides no authority for the statements.  As the Center has argued in its comments to the SEC, the ratio fails to communicate meaningful information to investors because it is dependent upon contextual factors such as where the company's workers are located, its decision to outsource versus own its manufacturing facilities, its global footprint and diversity of its businesses.  The letter urges the SEC to make the proposed rule the final rule, noting that it "provides flexibility to firms to enable their compliance with the law without exemptions that undermine the intent of the law."  The Center and HR Policy strongly oppose the pay ratio requirement, and strongly support H.R. 414 by Rep. Bill Huizenga (R-MI) which would repeal the requirement.