Wednesday, 18 March 2015 00:00

Grijalva, Ellison and Waters Call for Implementation of Dodd-Frank CEO Median Worker Pay Ratio Rule

Written by  Representatives Grijalva, Ellison and Waters | Press Release
Mar 17, 2015
 
Press Release
 

WASHINGTON – Today, Congressional Progressive Caucus (CPC) Co-Chairs Reps. Raúl Grijalva (D-AZ) and Keith Ellison (D-MN) joined Financial Services Committee Ranking Member Maxine Waters (D-CA) in calling on the Securities and Exchange Commission (SEC) to finalize its rule requiring publicly-traded corporations to publicly disclose the ratio of the compensation for their CEO to the compensation of their median worker.

The three lawmakers urged completion of the so-called “Median Worker Pay Ratio Rule” via a letter sent today to SEC Chair Mary Jo White.  This rule would implement section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was enacted more than four years ago. The letter was signed by Reps. Beyer, Brownley, Capuano, Chu, Cicilline, Clark, Cohen, Coleman, Conyers, Cummings, DeFazio, DeLauro, DeSaulnier, Garamendi, Green, Gutiérrez, Hastings, Hinojosa, Honda, Huffman, H. Johnson, Kaptur, Langevin, Lee, Lofgren, Lujan Grisham, Lynch, Matsui, McCollum,  McDermott, McGovern, Moore, Nolan, Norton, Pallone, Pingree, Plaskett, Pocan, Rangel, Sarbanes, Schakowsky, Bobby Scott, Slaughter, Smith, Speier, Takano, Thompson, Tsongas, Tonko, Van Hollen, Visclosky, Walz, Welch, Wilson and Yarmuth.

The text of the letter is below and a PDF is available here

The Honorable Mary Jo WhiteChairUnited States Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549

Dear Chair White:

We write to urge the Securities and Exchange Commission (SEC) to move quickly to finalize rules implementing section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Wall Street Reform Act”). This section requires publicly traded companies to disclose the ratio of the compensation of their CEOs to the compensation of their median worker. We were supportive of the SEC’s proposed rule to implement section 953(b) believing it reflects the legislative intent of the statute and effectively addresses any concerns regarding compliance costs.

As the Wall Street Reform Act was enacted more than four years ago, we believe it’s long past the time for the SEC to finalize this rule. Boards of directors, investors, and other stakeholders need this information to better understand and assess CEO compensation. CEO pay must be analyzed within the context of a comparison with the median employee pay at each firm. Disclosure of this information will help investors evaluate the reasonableness of CEO pay levels relative to other company employees when casting “say-on-pay” advisory votes as is required by the Wall Street Reform Act.

Research shows the higher the CEO to median worker pay ratio, the more likely that CEO is to pursue the kind of risky investments that brought on the global financial crisis. The Institute for Policy Studies found that nearly 40 percent of the highest-paid CEOs were fired, sought a bailout, or forced to pay fraud-related fines. Furthermore, a lower ratio of CEO to median worker pay implies more investment in human capital and a longer-term outlook. According to the Center for Audit Quality’s annual investor survey, 46 percent of investors say they consider CEO compensation in their decision-making.

Congress enacted the CEO-to-worker pay ratio disclosure rule in response to public concern over high executive compensation and the need to have this information available in an understandable format. The CEO of a S&P 500 company makes, on average, $331 for every $1 earned by the typical rank-and-file worker. In some companies, this ratio can reach as high as $1,000 to $1. Investors should be able to consider if a CEO provides hundreds of times the value of their employees prior to investing in a firm. While executives make critical decisions about the direction of their companies, quality employees ensure those decisions are properly implemented. This information will allow investors to ascertain whether company employees are fairly compensated.

The current culture of paying CEOs hundreds of times more than the typical employees hurts working families, is detrimental to employee morale, and goes against what research shows is best for business. Management expert Peter Drucker argued that a pay ratio not exceeding 20-to-1 or 25-to-1 is ideal, and that higher pay ratios make it difficult to foster the kind of teamwork and trust that businesses need to succeed. Today’s numbers dwarf that optimal ratio, contributing to stunning widening of economic inequality – 95 percent in income gains since the global financial crisis have gone to the top 1 percent while ordinary workers’ pay has stagnated. 

We urge the SEC to finalize its strong proposed rule in early 2015. The rule provides flexibility to firms to enable their compliance with the law without exemptions that undermines the intent of the law. Thank you for your attention to this matter and your prompt reply. 

Link to the Original Press Release

Read 1362 times Last modified on Wednesday, 18 March 2015 10:37

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