Waiting for 953b: Fifth Anniversary of Dodd-Frank Highlights SEC’s Delay on Disclosures

When As You Sow hosted a webinar introducing The 100 Most Overpaid CEOs, the first edition of our new report series analyzing S&P 500 executive pay packages and how mutual funds voted on them, many people asked questions about the ratio of CEO pay to worker pay. We had to tell them that although the rule demanding the disclosure of that figure was specified under the Dodd-Frank Wall Street Reform and Consumer Protection Act and signed into law back in July 2010, that data still isn’t available. And it won’t be available for the second edition. We aren’t even sure if it will be available for the third edition.   The CEO/worker pay ratio is a basic question that we should be able to answer, but without disclosure we can only make approximations, and there’s no reason we should be flying blind on this. Today marks the fifth anniversary of the passage Dodd-Frank. It is a sweeping piece of legislation, addressing a wide range of issues, from banking sector stability, the creation of a new consumer protection agency to conflict minerals supply chain transparency. Several provisions under Title IX relate to governance, and specifically to executive compensation. In January 2011, the SEC issued proposed rules to implement section 951, allowing shareholders to vote on executive pay, and requiring certain funds to disclose how they voted.

Other rules have been much slower in coming. In April of this year, the SEC issued proposed rules under 953a which will require clear and comparable disclosure on the interplay of pay and performance. Just earlier this month – with today’s anniversary fast approaching – the SEC issued proposed rules on clawbacks, which will allow companies to “claw back” compensation if it turns out the executive fudged the numbers – a practice more widespread than an honest investor might imagine.

But proposing rules is only one step in the process. Almost two years have passed since the SEC issued proposed rules on Section 953b, with little action since. This crucial rule will require disclosure of the ratio of CEO pay to that of average worker at a given company. That simple, digestible comparison has long intrigued shareholders, and there is no doubt that investors and citizens alike are clamoring for this data. After proposed rules were released in September 2013, over 130,000 individuals filed comment letters – a record for the SEC. Almost all these letters, many of which make for fascinating reading, were filed in support of the rule. But the SEC continued to drag its feet. Elizabeth Warren wrote a scathing letter to SEC Chairwoman Mary Jo White, specifically referencing promises made during White’s confirmation hearings. In July 2015, several large organizations – including Public Citizen and the AFL-CIO – delivered a petition with 165,000 signatures demanding implementation of the rule.

And here we are, still waiting for the disclosures that were promised.

When implemented, 953b will be a crucial data point. Thanks to mandated disclosures, some in place since the Great Depression (and opposed by corporations then as vigorously and bitterly as modern companies oppose current reforms), we already know how much CEOs are paid. The standardized pay ratio will give us new insight into a company’s pay philosophy. It will help us see which companies view employees as resources, and not just as costs. Poorly designed executive compensation programs can incentivize a short term focus. The long term sustainability of the company depends on so much more than the individual in the corner office.

The current system of executive compensation is bad for the worker; it’s bad for the economy; and it’s bad for the shareholders of companies overpaying their CEOs. When 935b is implanted, we’ll know which companies are helping drive the “upward spiral” of skyrocketing CEO pay. It’s time for the SEC to implement the rule, mandate the disclosures, and free investors and consumers from the endless wait.