by Cydney Posner

The WSJ is reporting that the SEC staff has spent an aggregate of 7,196 hours since 2011 working on the development of the still-in-the-proposal-stage pay-ratio disclosure rules required under Dodd-Frank.  According to a letter from SEC Chair Mary Jo White to the House Financial Services Committee, that amounts to about $1.1 million in labor costs. In the same letter, White denied that the time spent on this rulemaking was causing the staff to dawdle on completing other rules: the “’time spent by the staff on the pay ratio rulemaking does not mean that we have diminished our focus on fulfilling our rulemaking or other obligations….Completion of all the commission’s mandated rulemakings continues to be a priority for me.’”

The pay-ratio proposal was initially released in September 2013 and was the subject of thousands of comments, although many were form letters.  As noted in this post, in November, three Republican congressman — House Financial Services Committee Chairman Jeb Hensarling, and Reps. Scott Garrett  and Bill Huizenga —  wrote to White urging that the SEC stop spending time on the pay-ratio disclosure rules and prioritize completing rulemaking required under the JOBS Act, such as the crowdfunding rules. According to the WSJ, they also requested that she provide “a detailed description of the funds and man-hours spent on the pay-ratio rule [and] said the SEC need not act swiftly on the rule because the Dodd-Frank law doesn’t impose a specific deadline for its completion, unlike provisions of the JOBS Act.” White’s letter was provided in response to that request.

Not to be outdone, on December 16, Senator Robert Menendez and 15 other Democrats and Independents sent a letter to White, urging her to commit to bringing the final pay-ratio rule to a vote of the SEC before the end of the first quarter of 2015.  (Note that it’s currently delayed on the most recent SEC agenda until October 2015.) In particular, the letter observes as follows:

“While CEOs can create value for companies, so can ordinary workers.  Pay ratio disclosure helps investors evaluate the relative value a CEO creates, which facilitates better checks and balances against insiders paying themselves runaway compensation.  When a company’s performance improves but only the CEO is rewarded, for example, investors should know, so they can ask what kinds of incentives this creates for the company’s future performance.  Or when a CEO asks for a raise while giving other employees a pay cut, investors should have this information to help them evaluate whether this is value creation or simply value capture by insiders – especially in an environment where incomes for the top 1 percent have grown by more than 86 percent over the last 20 years while incomes for everyone else have grown by less than 7 percent.”

The House Financial Services Committee is not exactly enamored of pay-ratio disclosure.  In fact, in prior years, the House Committee has advanced bills seeking to repeal the pay-ratio disclosure requirement, but Senate Democrats made clear at the time that they opposed repeal.  (See, e.g., my news briefs of 6/24/117/13/11 and 6/20/13.) Now that Republicans will be in control of both the House and the Senate, how much influence, if any, will the Democrats’ letter have on the SEC and what, if anything, will the House Committee make of the thousands of SEC staff hours spent on the pay-ratio rules?

Posted by Cydney Posner