Big pay gaps to be revealed

File picture: Free Images.

File picture: Free Images.

Published Jul 9, 2017

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Washington - Soon after Donald Trump's

election, a rule that would require companies to disclose a potentially

embarrassing math calculation for the first time next year - a ratio of what

their CEO makes compared to their median worker - was thought to be a goner.

For one, the rule was part

of the Dodd-Frank legislation that Trump's transition team had promised to

"dismantle," a move that seemed all but assured with a

Republican-controlled Congress. Pay experts thought it would get the ax.

And in early February,

then-acting Securities and Exchange Commission Chairman Michael Piwowar, who

had written a stinging dissent of the rule last year, opened a comment period

to let companies weigh in on the challenges they were facing and said he had

directed his staff to "reconsider the implementation of the rule based on

the comments."

But midway through 2017,

companies now find themselves staring down deadlines for calculating and

disclosing the controversial number, at least for next year, which many of them

have said is difficult given the complexity of today's global workforces.

"Originally, a repeal

looked like a no-brainer," said David Wise, a senior client partner at

Korn Ferry Hay Group. "But Washington

is inundated with bigger issues than this one." As a result, lawyers and

consultants with compensation expertise say they are flooded with calls from

companies preparing to address the issue.

"Through June 30, or at

least through the early part of this year, there was fairly bullish optimism

that the rule would be either repealed or delayed," said Jim Barrall, a

senior fellow in residence at the Lowell Milken Institute for Business Law and

Policy at the UCLA School of Law. "But as summer wears on and we head into

the busy fall season, I can tell you they are realizing they need to focus on

this if they haven't."

Larger S&P 500 companies

have probably been working on the calculation for a while given the size and

complexity of their workforces, Barrall said. But smaller companies that

"have been whistling by the graveyard, hoping this would go away, have to

focus on the realistic possibility that the rules will not be repealed or

delayed and will require full disclosure in their 2018 proxies."

There are several reasons,

executive pay experts said, that the view has shifted, at least temporarily.

While a repeal of the ratio was included in the Financial Choice Act that

passed the House in June, legislation that would ease banking regulations has

been seen as a protracted battle.

"The chances of that

making its way through the Senate are rather limited," said Steve Seelig,

a senior regulatory adviser for Willis Towers Watson, a human resources

consulting firm. Especially doing so quickly: Seelig said many companies will

be trying to complete the calculation by Oct. 1, before they head into the busy

year-end season, even if they remain "hopeful someone will sweep in and tell

them they don't have to disclose" in their filings next year.

Meanwhile, much bigger

battles such as the one over health care or tax reform are expected to take

priority in a White House that is still yet to see its first major legislative

victory. "In January, the betting man in me said this will be repealed in

2017," Wise said. "Here in July, the betting man in me says this will

be in place next year, only because of the traffic in the queue. You've got

some big, big trucks in front of you."

And while the SEC could try

to delay the rule, a bare-bones commission means for now, the lone current

Democrat could choose to decline to attend the vote, said Seelig, preventing a

needed quorum. A spokesman for the SEC declined to comment on upcoming plans; a

White House spokeswoman was not immediately able to respond to a request for

comment.

The rule, a last-minute

addition to the Dodd-Frank financial reform act in 2010, was finalized by the

SEC in 2015 and requires 3,800 public companies to disclose the figure in

filings they release to investors in early 2018 for their 2017 fiscal year.

Companies have been big opponents, arguing the ratios set up unfair comparisons

between industries where the median worker makes relatively more or less -

financial services vs. retail, for instance - and offer little new information

for investors since executive compensation data is already disclosed.

Read also:  Shoprite CEO scoops R50m performance bonus 

Those in favor say it could

provide added pressure on skyrocketing CEO pay and help shareholders spot

companies that view employees as real assets rather than costs. It could also

help Americans get a better grasp of how wide the gap between average workers

and their CEOs really is: One study from 2014 found that Americans think the

gap between executives and unskilled workers is about 30 to 1, when it was

actually more than 300 to 1, according to some estimates.

WASHINGTON POST

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