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United States. Securities and Exchange Commission

SEC Adopts Rule Requiring Public Companies to Disclose Pay Gap between CEOs and Employees

Strategic Insights

— 1 min read

Rhode Island Senator Jack Reed has been a key proponent of a rule that will require publicly traded companies to disclose the pay gap between their chief executive officers (CEOs) and rank-and-file employees. The Securities and Exchange Commission (SEC) has adopted the rule, which is a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act. This new requirement aims to shed light on the growing income disparities in the United States between CEOs and the workers they employ.

Key Takeaways:

  • The SEC has adopted a rule requiring publicly traded companies to disclose the pay gap between their CEOs and rank-and-file employees.
  • The rule is a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was backed by Senator Jack Reed.
  • The average CEO at S&P 500 companies earned 373 times more than the typical U.S. worker in 2014, according to a recent report by the AFL-CIO.
  • This disclosure requirement will provide investors with more information about the incentives and pay structures of publicly traded companies.
  • The rule will require public companies to report the pay ratio in their SEC disclosures starting on or after January 1, 2017.
  • A recent report by the AFL-CIO found that the average CEO at S&P 500 companies earned 373 times more than the typical U.S. worker in 2014.
  • CEO pay at American firms rose 937 percent from 1978 to 2013, compared with a mere 10.2 percent growth in worker compensation over the same period, according to the Economic Policy Institute.
  • The joint Committee on Taxation estimated that the loophole allowing unlimited tax write-offs on performance-based executive pay costs U.S. taxpayers more than $55 billion over a 10-year timeframe.
  • The Stop Subsidizing Multimillion Dollar Corporate Bonuses Act would close this loophole and limit tax deductions to $1 million in pay per employee.

Sources:

  • Senator Jack Reed, "U.S. Senator Jack Reed Backs SEC Rule Requiring Publicly Traded Companies to Disclose CEO Pay Ratio"
  • AFL-CIO, "CEO-to-Worker Pay in 2014: 373 to 1"
  • Economic Policy Institute, "CEO Compensation: 1978-2013"
  • Joint Committee on Taxation, "Estimated Revenue Effects of Certain Cuts to Corporate Tax Loopholes Introduced in the 113th Congress"
  • The Atlantic Monthly, "CEO Pay: An Outrageous Inequality, Explained"

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