Companies will be forced to disclose how many times more their Chief Executive Officers earn relative to rank and file employees, the result of a little known regulation in Dodd-Frank to be finalized later this year.
The provision is backed by labor unions like the AFL-CIO, which seeks to “shame companies into lowering CEO pay.” The price tag of the regulation is expected to be “substantial,” costing more than $72.7 million and over 500,000 hours to comply.
The “pay ratio disclosure rule,” originally found in section 953(b) of the Dodd–Frank Wall Street Reform of 2010, requires all publicly traded companies to disclose the ratio of the CEO’s salary compared to the median salary of all employees at the company.
The Securities and Exchange Commission’s (SEC) proposed regulation would require the disclosure in a company’s annual report.
“For example, if the median of the annual total compensation of all employees of a registrant is $45,790.39 and the annual total compensation of a registrant’s [principal executive officer] PEO is $12,260,000, then the pay ratio disclosed would be ‘1 to 268’ (which could also be expressed narratively as ‘the PEO’s annual total compensation is 268 times that of the median of the annual total compensation of all employees’),” the proposed rule explains.