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From Securities Regulation Daily, December 2, 2013

Senators urge quick adoption of Dodd-Frank's CEO to worker pay ratio rule

By Jim Hamilton. J.D., LL.M.

Noting that the SEC has maximized benefits and reduced costs associated with proposed regulations implementing the Dodd-Frank Act pay ratio provisions, 13 U.S. senators urged the Commission to adopt the final regulations as soon as possible. In a letter to SEC Chair Mary Jo White, the senators warned against those who would use a distorted cost-benefit analysis to block the implementation or to support a rule that is inconsistent with the statute and with the legislative process before Congress adopted the Sec. 953(b) amendment to the Dodd-Frank Act. Section 953(b) directs the SEC to adopt rules requiring new disclosures about the relationship between executive compensation and company performance, and the ratio between the median of the annual total compensation of a company's employees and the annual total compensation of the company's CEO.

The letter was signed by Sen. Robert Menendez (D-N.J.), the sponsor of Sec. 953(b), and Assistant Majority Leader Dick Durbin (D-Ill.), as well as Senators Tom Harkin (D-Iowa), Elizabeth Warren (D-Mass.), Ed Markey (D-Mass.), Jeff Merkley (D-Or.), Jack Reed (D-R.I.), Richard Blumenthal (D-Conn.), Barbara Boxer (D-Cal.), Sherrod Brown (D-Ohio), Bob Casey (D-Pa.), Bernard Sanders (I-Vt.), and Al Franken (D-Minn.).

Pay ratio. Investors need better information and better metrics, emphasized the senators, and the CEO-to-worker pay ratio will provide an additional, valuable tool for setting appropriate compensation and measuring the relative value a chief executive creates. Congress intended Sec. 953(b) to increase transparency with regard to the growing disparity between CEO and worker pay ratios, thereby encouraging companies to take a harder look at the rising pay discrepancies, as well as by providing investors and policy-makers with a better understanding of pay.

The senators also wrote that the SEC proposal for implementing disclosure of the CEO-to-worker pay ratio gives companies considerable flexibility in how they can determine the median worker pay for purposes of calculating the ratio, while at the same time following legislative intent by ensuring that the pay ratio disclosure will still be meaningful to investors. Importantly, the proposal provides companies with relatively simple and efficient options for making and reporting the required calculations, including accounting for all employees, without diluting the effectiveness of the disclosure. With the flexibility afforded by the proposal, the senators advised that they would view skeptically calls to obstruct a final rulemaking based on objections to the cost or complexity.

MainStory: TopStory DoddFrankAct

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