The Securities and Exchange Commission voted 3-2 today to propose a rule to link the pay of top corporate executives to their companies’ financial performance.
NPR’s Jim Zarroli, reporting on All Things Considered, says: “The rule grew out of the 2010 Dodd-Frank financial overhaul bill. And it simply says that companies have to disclose whether executive pay is in line with their financial performance.
“This information is already available for people who want to pore through financial reports. The new law would simply require companies to put it in a form that’s easier for shareholders to digest.”
But, he adds, it’s unclear what impact the new rule will have on corporate pay.
SEC Chairwoman Mary Jo White said in a statement that the proposed rules “would better inform shareholders and give them a new metric for assessing a company’s executive compensation relative to its financial performance.
“The proposal would require enhanced disclosure that can be compared across companies.”
The issue of outsized executive pay drew attention during the 2008 financial crisis.
Here’s more from the SEC statement:
“The proposed rule would require a company to disclose executive pay and performance information for itself and companies in a peer group in a table and to tag the information in an interactive data format. A company would be required to disclose executive compensation actually paid for its principal executive officer using the amount already disclosed in the summary compensation table required in the proxy statement, making adjustments to the amounts included for pensions and equity awards. The amount disclosed for the remaining executive officers would be the average compensation actually paid to those executives. As the measure of performance, a company would also be required to report its total shareholder return (TSR) and the TSR of companies in a peer group.”
In most cases, companies would have to disclose the information for the last five fiscal years; for smaller firms, it’s three fiscal years.
The proposed rule will now be subject to a 60-day comment period.
The Associated Press adds:
“As they did with the 2013 proposed requirement on the CEO-employee pay ratio, the two Republican SEC commissioners, Daniel Gallagher and Michael Piwowar, opposed the action Wednesday. They said it was the latest example of federal government intrusion into how companies govern themselves, imposing a ‘one-size-fits-all’ standard of calculating a company’s performance.
“The agency has yet to formally adopt the rule on the CEO-employee pay ratio, proposed by a divided SEC in September 2013 and touching off fierce controversy.”