The Advisors' Blog

–Ted Allen, ISS’s Governance Institute

Four Senate Democrats have said they would oppose the repeal of a Dodd-Frank Act provision that would require companies to disclose the ratio between their CEO’s total compensation and the median total pay of all other employees. In a letter last week, Senators Robert Menendez of New Jersey, Tom Harkin of Iowa, Sherrod Brown of Ohio, and Carl Levin of Michigan defended Section 953(b) of the Dodd-Frank legislation and urged a corporate lobbying group to drop its opposition to this provision. Menendez and Brown are members of the Senate Banking Committee, which has jurisdiction over corporate disclosure issues.

“If we are to generate a long-lasting recovery, we need to ensure that hard-working middle class families are once again able to share in their company’s successes through rising wages and benefits, just like CEOs have done for decades,” the four senators wrote. “Section 953(b) of the Wall Street Reform Act will help to further this important goal by increasing transparency, encouraging firms to take a harder look at the rising pay discrepancies between CEOs and their workers, and providing investors and policymakers with a better understanding of pay.”

The senators’ letter specifically cited the $12 million pay package received in 2010 by Lowe’s CEO Robert Niblock, which the lawmakers said was “380 times the $31,637 pay of department managers” at the retailer. The letter also pointed out that some companies, such as Whole Foods Market and MBIA, have disclosed pay ratio information voluntarily in their most recent proxy statements.

Section 953(b) has not taken effect, and the SEC plans to issue proposed rules to implement this provision later this year. Companies and their advocates have complained that Section 953(b) would impose a significant compliance burden, especially on large multinational companies that have employees around the world. However, the AFL-CIO labor federation has argued that this provision would prod boards to set executive compensation based on a company’s own organizational needs, rather than based on executive pay at other firms.

On June 22, the House Financial Services Committee voted 33-21 to approve HR 1062, the Burdensome Data Collection Relief Act, which would repeal Section 953(b). It appears likely that HR 1062 will win approval from the Republican-controlled House of Representatives. The legislation’s prospects are less certain in the Senate, where Democrats still have a majority.

Meanwhile, institutional investors (which are Form 13F filers) still are waiting for the SEC to issue final rules on another Dodd-Frank mandate–the disclosure of proxy votes on “say on pay,” pay vote frequency, and “golden parachutes.” The SEC now states that the final rules will be released by the end of July, but the commission has made similar pledges since March. The filing deadline in the draft disclosure rules is Aug. 31, but agency observers expect that this deadline will be extended.