Van Hollen Calls on SEC to End Delay in Requiring CEO Pay Ratio Disclosure

Today U.S. Senator Chris Van Hollen (D-Md.) joined Senator Bob Menendez (D-N.J.) in sending a letter to the head of the Securities and Exchange Commission (SEC) urging the Wall Street regulatory agency to cease any delay in implementing a Congressionally-mandated rule that requires publicly traded companies to disclose to investors the pay ratio between their chief executive and median employee. Last month, SEC Acting Chair Michael Piwowar unilaterally decided to reopen the public comment period despite the fact that the SEC adopted the final rule 18 months ago.

"We are concerned that your unilateral decision to open a second public comment period on a rule that has already been adopted by the SEC is solely intended to discredit the rule and generate momentum to repeal the statutory requirement," the senators wrote to SEC Acting Chair Piwowar. "Moreover, we are alarmed that your remarks appear to solicit comments from issuers only, improperly overlooking the views of the thousands of investors that submitted comments to the SEC prior to its adoption of the final rule."

Senator Van Hollen is committed to growing our economy with more broadly shared prosperity. His first act as U.S. Senator was to introduce the CEO-Employee Paycheck Fairness Act, which would prevent companies from getting taxpayer-subsidized write-offs for CEO bonuses if they're not also giving decent raises to their rank-and-file employees. As the wealth gap between the ultra-rich and the rest of Americans grows, Senator Van Hollen is fighting every day to ensure hardworking Americans get a fair shot and their fair share.

"For nearly seven years, investors have been waiting for this disclosure, and now as the first reporting period has just begun, you have inexplicably halted this important investor tool," the letter continued. "We urge you to retract your statement opening a new public comment window on the rule and directing SEC staff to reconsider the rule, and we expect the SEC to allow the full implementation of the CEO-to-worker pay ratio disclosure rule to recommence without delay."

The letter was cosigned by Sens. Jack Reed (D-R.I.), Elizabeth Warren (D-Mass.), Cory Booker (D-N.J.), Richard Durbin (D-Ill.), Jeff Merkley (D-Ore.), Al Franken (D-Minn.) and Bernie Sanders (I-Vt.).

The senators argued that disclosing CEO-to-worker pay ratio increases transparency and provides critical information to investors to better understand executive compensation. Salary disparity continues to widen, with the CEO of an S&P 500 company in 2015 making an average 335 times what their typical employee takes home.

The full text of the letter is below:

Dear Acting Chair Piwowar:

We write to oppose any delay in the full implementation of the Securities and Exchange Commission's (SEC) CEO-to-worker pay ratio disclosure rule. We are extremely troubled by your decision to open a new comment period on the final rule adopted by the SEC 18 months ago and to direct SEC staff to "reconsider the implementation of the rule." For nearly seven years, investors have been waiting for this disclosure, and now as the first reporting period has just begun, you have inexplicably halted this important investor tool.

As you know, section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act indisputably requires publicly traded companies to disclose the ratio of what they pay their CEO to the compensation of their median worker. During the comment period, the SEC received 287,400 comment letters on the proposed rule, the vast majority of which strongly supported the rule. Among those commenters were a wide range of institutional investors and investment managers expressing the view that the ratio of CEO-to-worker pay at publicly traded companies is important and material information for investors to help them understand and assess executive compensation and companies' approaches to developing human capital.

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 that they can ask what kinds of incentives this creates for the company's future performance. Similarly, 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. Investors should have this information available to consider when they vote on executive compensation.

In the seven years that investors have been waiting for this disclosure, the gulf between CEO and median worker pay has only widened. Average CEO pay at the 350 largest U.S. companies, measured by revenue, increased 997 percent from 1978 to 2014, while the compensation of non-supervisory employees rose only 10.9 percent. In 2015, the CEO of a S&P 500 company made, on average, $335 dollars for every dollar earned by a typical employee. In light of this trend, the CEO-to-worker pay ratio disclosure rule increases transparency and provides critical information to investors to better understand executive compensation.

The final rule adopted by the SEC addresses cost concerns and provides appropriate flexibilities to facilitate compliance, including allowing a company to select a methodology to identify its median employee and the employee's compensation. The final rule goes to great lengths to accommodate the individual circumstances of each company required to report under the rule. As such, we are concerned that your unilateral decision to open a second public comment period on a rule that has already been adopted by the SEC is solely intended to discredit the rule and generate momentum to repeal the statutory requirement.

Moreover, we are alarmed that your remarks appear to solicit comments from issuers only, improperly overlooking the views of the thousands of investors that submitted comments to the SEC prior to its adoption of the final rule. In August 2015, as the SEC voted to adopt a rulemaking pursuant to section 953(b), you made it clear that you believe the requirement is nothing more than an attempt by "Big Labor" to shame CEOs, a misguided view with which thousands of investors disagree. Ultimately, the clear statutory mandate for companies to disclose the ratio of their CEO to median worker pay remains unchanged.

We urge you to retract your statement opening a new public comment window on the rule and directing SEC staff to reconsider the rule, and we expect the SEC to allow the full implementation of the CEO-to-worker pay ratio disclosure rule to recommence without delay. Please provide a response no later than April 7, 2017, and please include in your response an estimate of the cost of your actions to open a new public comment period and to devote staff resources to reconsideration of the rule.

Sincerely,