SEC Votes To Disclose The Wage Gap

A new rule many CEOs are likely dreading is one step closer to being finalized at the SEC.

The Securities and Exchange Commission today unveiled a new controversial rule that would disclose the wage gap between CEOs of public companies and that of its workers.

The SEC was split on the proposal voting 3-2 on the rule that would allow anyone to see the pay gap between employees and the CEO.

CEO and named executive officers are already required to make public their compensation in annual SEC filings, but this rule would also require companies to calculate and make public the median pay of its workers.

That new disclosure isn't sitting well with many who say the new pay disclosure is burdensome.

Critics of the rule say collecting such data about employee compensation each year is overwhelming. For instance, they argue, global companies may have compensation administration in each country it operates in making it difficult and costly to gather the necessary information.

But the SEC's proposed rule today is somewhat less burdensome than originally planned.

"The rules proposed would not require a specific methodology, but instead would provide a company with the flexibility to determine the median and calculate the annual total compensation for that employee in a way that best suits its particular circumstances," said SEC chair Mary Jo White in a prepared remarks.

That means companies could come up with their own methodology to come up with the median pay. A company could use a sampling of employees rather than collect the information for its entire workforce.

Here's the pay ratio requirement from the SEC:

The median of the annual total compensation of all its employees except the CEO. The annual total compensation of its CEO. The ratio of the two amounts.

But that's still too much information say critics.

SEC Commissioner Daniel M. Gallagher voted against the rule today saying the rule has "nothing to do with the SEC's mission and everything to do with the politics of not letting a serious crisis go to waste."

He added in remarks, "Gimmicks like these don't belong in corporate filings.  The agency would sanction issuers who acted so "creatively" in other areas of their 10K or proxy disclosure."

However, proponents of the rule say the more information a company discloses the better. That's particularly true for investors who would now have yet another way to measure how a company spends its money.

SEC commissioner Luis A. Aguilar notes that large public company CEOs were paid an average of 204 times the compensation of rank-and-file workers in their industries. "By comparison, [the study] estimated that the average CEO was paid about 20 times the typical worker's pay in the 1950s, with that multiple rising to 42-to-1 in 1980, and to 120-to-1 in 2000," he says in his remarks.

CEO pay has been a hot issue since the financial crisis which drew greater attention to outsized compensation packages.

Since the crisis more shareholders, particularly those invested in big Wall Street banks, are paying closer attention to executive pay.

Rules like "Say On Pay" which allow shareholders to vote against pay packages of CEOs have received more attention.