On September 18, the SEC will consider whether to propose rules requiring companies to disclose the pay gap between CEOs and all other employees. These rules were mandated by Dodd Frank in 2010, but the SEC has delayed proposing the rules, in part, because it has struggled with the law's statutory language, which limited the SEC's flexibility and required a lengthy formula to tally compensation.
According to people familiar with the proposal, the proposed rules are expected to be less onerous than what Dodd Frank originally ordered the SEC to adopt. Generally, the proposed rules are expected to require companies to disclose the median annual total compensation of all employees and the ratio of that median to the annual total compensation of the company's CEO. However, rather than surveying the entire workforce, the proposed rules are expected to allow companies to consider a fraction of their employees when calculating median pay.
Proponents of the rules say that they could put added pressure on boards of directors to slow pay increases for CEOs at companies with significant or growing gaps. The AFL-CIO calculates that top executives of the largest U.S. companies made 307 times median rank-and-file worker pay in 2012.
Critics of the rule contend that the rules are unnecessary and would be too onerous and expensive.
Some companies already have some form of a cap on the CEO-to-employee compensation ratio. Whole Foods, for example, limits the maximum cash compensation it pays its CEO to 19 times the average hourly wage of its employees (about $39,000 per year). However, that cap does not take into account equity and other forms of compensation, which are expected to be covered by the proposed rules.