Pay Ratio Redux

Ratio Redux

When Dodd-Frank was passed in Congress and signed by President Obama in 2010 a long battle began to get a particular portion adopted: one that allows shareholders to see the ratio between the CEO and a median employee. Finally, in 2015 it was passed. Here’s something I wrote at the time which gives background to the bill.

But as with so many other areas, the Trump administration is opening previously settled ground for new contests.

Anyone can write a letter: if you have a 401k or pension fund then you are a shareholder your opinion matters.

To submit, simply: go to Piwowar’s statement, there’s a link to a form set up just for this regulation (look for “submission of detailed comments”): Or you can email: rule-comments@sec.gov and put “Pay ratio disclosure” in subject line.

The letters ultimately are posted on-line. You can read some of them here if you are looking for inspiration.

Also, below I am pasting the copy of the letter As You Sow submitted today:

 

Re: Reconsideration of Pay Ratio Rule Implementation

Dear Chairman Piwowar,

As Program Manager of As You Sow’s Power of the Proxy initiative, I am writing to provide our comments in response to the February 6, 2017 public statement regarding Reconsideration of Pay Ratio Rule Implementation.

Founded in 1992, As You Sow promotes environmental and social corporate responsibility through shareholder advocacy, coalition building, and innovative legal strategies. Our efforts create large-scale systemic change by establishing sustainable and equitable corporate practices.

As You Sow was founded on the belief that many environmental and human rights issues can be resolved by increased corporate responsibility. As investor representatives, we communicate directly with corporate executives to collaboratively develop and implement business models that reduce risk, benefit brand reputation, and protect long term shareholder value while simultaneously bringing about positive change for the environment and human rights.

We write today to encourage the SEC to maintain its scheduled implementation of 953(b). The provision was a portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act passed by Congress and signed into law on July 21, 2010.

The implementation of this section of the law — requiring companies to disclose a ratio between the pay of the CEO and a median employee — was slowed by corporate opposition. The SEC commissioners finally approved the rule on August 5, 2015. At that time Larry Mishel of EPI noted, “The delay shows the power of corporate lobbyists, but the finalizing of the rule is a win for the American people.” As You Sow believes strongly that any further delay on this rule represents nothing but a victory for corporate lobbyists.

The first of the SEC’s missions is to “protect investors.” That statement further notes that, “Companies offering securities for sale to the public must tell the truth about their business.” We believe that reporting pay ratio is an important part of the truth that we, as investors, deserve to have.

The February statement appears to be a response to issuers (the companies themselves), and not investors. According to the statement, “issuers have begun to encounter unanticipated compliance difficulties” Frankly, we are surprised that there are “unexpected” difficulties given the number of potential difficulties identified by companies as the rule proceeded through the process.

However, past pattern has shown that issuers decry every potential regulation. I recall, for example, the extraordinary response from many corporations nearly 15 years ago when investors sought to have options expensed. I hear many echoes of letters written then being raised today in opposition to all things Dodd-Frank.

In contrast to the letters from corporations and consultants opposing the initial pay ratio rule there were nearly a quarter of a million of letters submitted in favor of the ratio. Shareholders, both individual and institutional, explained their interest in the pay ratio data during the initial rule making and many are doing so again.

We believe the disclosure will help shareholders see which companies view employees as resources, and not just as costs. Companies universally acknowledge the need to attract and retain officers and executives when justifying compensation packages. The pay ratio, when compared to that of peer companies, will assist shareholders in seeing whether the attraction and retention of other employees is a similar priority.

Poorly designed executive compensation programs can incentivize a short term focus. The long term sustainability of the company depends on so much more than the individual in the corner office.

We urge you to maintain your current schedule.