In a split vote earlier today, the SEC voted to propose a rule requiring companies to disclose the ratio of their CEO's pay vs. the median compensation of the company's employees.
Among the first to report out the results of today's vote was Bloomberg BNA, in an article entitled, SEC Decides in Split Vote to Propose Executive Pay Ratio Rule
(subscription required). As noted in the BNA article, the vote was 3-2, with "SEC Chairman Mary Jo White
and Commissioners Luis A. Aguilar and Kara M. Stein vot[ing] for the proposal..[and] Commissioners Michael S. Piwowar and Daniel M. Gallagher vot[ing] against it." Here are the opening statements setting the stage for the votes by White
Stein (not yet posted), and dissenting statements of Piwowar
Piwowar's dissent on the proposed Exec Pay Ratio Disclosure rule can be found at the beginning of his prepared remarks linked above, and in the second half of his prepared remarks, which discuss both matters taken up by the Commission earlier today: consideration of a proposed rule on Municipal Advisors (which was also passed by the Commission), followed by consideration of the Exec Comp Pay Ratio disclosure proposal. Here are some excerpts from Piwowar's prepared remarks:
It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”
The opening lines to the Charles Dickens novel A Tale of Two Cities are an apt description of the Commission’s current rulemaking process and agenda. The two recommendations that we are considering this morning exemplify why it is simultaneously both “the best of times” and “the worst of times” at the Commission.
The first recommendation is to adopt a final rule that defines a new class of regulated persons, “municipal advisors,” and establishes a registration regime for them. The second is to propose a rule that requires the disclosure of the ratio of the median of the annual total compensation of all employees of an issuer to the annual total compensation of that issuer’s chief executive officer. The contrast between these rulemakings could not be starker. But, what is consistent is the dedication of the Commission’s talented staff. I want to thank both rulemaking teams for your efforts......
The SEC staff's recommendation in the proposal to permit Statistical sampling to diffuse concerns about the potential cost of gathering the required "median annual total compensation of all employees" was remarked upon during the open Commission meeting by two senior staff members, according to the BNA report:
The proposed rule is “designed to provide flexibility” by permitting the use of statistical sampling to identify the median employee, Craig M. Lewis, director and chief economist of the SEC's Division of Economic and Risk Analysis, said at the open meeting. The proposed rule allows the registrant to choose the statistical methodology that is appropriate to its needs, said Keith F. Higgins, director of the commission's Division of Corporation Finance.
Indeed, the SEC was mandated to devise a rule - although specifics in coming up with the underlying number for the "mean total annual compensation for all employees" in a reasonable, practical and cost-benefical way, and some of the specifics as to the detailed disclosures in a similarly cost-beneficial way - were left to the SEC's judgment - by Section 953(b) of the Dodd-Frank Act.
There is some interesting reading on the use of Statistical Sampling to develop the disclosures required by Dodd-Frank Section 953(b), in looking for other info on this particular Section of the Dodd-Frank Act, I happened to find a related paper posted by the AFL-CIO's
Division of Investment, and although I do not know when or in what context it was originally posted, it appears to be on point: How the SEC Can Minimize Dodd-Frank Section 953(b) Compliance Costs by Permitting the Use of Statistical Sampling to Calculate the Median
For more insights from BNA - and the SEC! - come to FEI's Current Financial Reporting Issues Conference (CFRI)
Nov. 18-19, 2013 in NYC, where you can hear from Keynoter Paul Albergo, Director of News Coverage of BNA
, as well as Rana Foroohar, Assistant Managing Editor, Time Magazine
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