The U.S. Securities and Exchange Commission approved a ruleWednesday requiring companies to reveal the pay gap between thechief executive officer and their typical worker, handing a newweapon to groups protesting rising income inequality.

The commission voted 3 to 2 to mandate the disclosure. Theagency had delayed progress on the rule for years, with SEC ChairMary Jo White facing attacks from unions and Democratic lawmakersin recent months for failing to get it done.

The disclosure is required under the 2010 Dodd-Frank Act, whichhasn't stopped it from splintering the five-member commission.Republican commissioners and business groups argue it's meant toembarrass CEOs and won't be useful to investors.

White and the SEC's two Democrats, Luis Aguilar and Kara Stein,approved the rule. Democrats have said the metric will be helpfulto shareholders who are deciding how to vote on executive paypackages.

“While there is no doubt that this information comes with acost, the final rule recommended by the staff provides companieswith substantial flexibility in determining the pay ratio whileremaining true to the statutory requirements” of Dodd-Frank, Whitesaid at the meeting.

The SEC required companies to disclose the median compensationof all its employees, excluding the CEO, and publish a ratiocomparing that figure to the boss's total pay. Companies would haveto report the pay ratio beginning in 2017.

In a nod to businesses such as Exxon Mobil Corp. that oppose theeffort, the SEC will require the metric to be updated only onceevery three years and will allow companies to exclude as much asfive percent of their foreign workers from the calculation.

The SEC gave allowed for some discretion in determining themedian pay of workers. Companies can use sampling to estimate thefigure, rather than calculating it by tallying data from all of thepayrolls across the company.

“These decisions were designed to facilitate compliance with therule in a manner that is reasonable and workable” for companies,Aguilar said.

'Peculiar' Decision

Even so, Republicans and business groups still oppose therequirement and said the SEC ignored some of their recommendationsto improve it. Groups such as the U.S. Chamber of Commerce or theBusiness Roundtable are expected to sue the agency over therule.

“We will continue to review the rule and explore our options forhow best to clean up the mess it has created,” the chamber's DavidHirschmann said in a statement Wednesday.

Republican lawmakers have sponsored legislation that wouldrepeal the provision in Dodd-Frank that underpins the SEC's rule.Commissioner Michael Piwowar, a Republican who opposed the measure,said he found White's decision to move forward “peculiar” giventhat opposition in Congress.

Commissioner Daniel Gallagher, another Republican, said the voteshows how the agency's rulemaking agenda has been hijacked by“ideologues” and partisans who want to shame businesses intoreducing CEO pay.

“A majority of the commission has opted for a hugely expensiverule over a much less expensive rule,” Gallagher said. “I can onlyconclude that there is no reasoned basis for the commission'saction.”

Average CEO pay at the 350 largest U.S. companies by revenuesurged 997 percent from 1978 to 2014, while the compensation ofnon-supervisory employees rose 10.9 percent, according to theEconomic Policy Institute, a research group that advocates forworkers.

While CEOs earned about 30 times what the typical employee didin 1978, corporate chiefs' pay had jumped to more than 300 timestheir employees' compensation as of 2014, the institute said.

Bloomberg

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