Companies will have to provide investors with a ratio showing how the median pay of their workforce squares with their chief executive officers' compensation, according to new rules slated for adoption by U.S. securities regulators on Wednesday.
Continue Reading Below
Under the Securities and Exchange Commission's final rules, companies will get some flexibility in how they find the median. For instance, they can exclude 5 percent of their overseas workers when arriving at the number and use statistical sampling.
However, those changes are not likely to assuage corporate trade groups, which have opposed any rule and are widely expected to file a legal challenge.
The SEC has been under mounting pressure by Democrats, like Massachusetts Senator Elizabeth Warren and unions, who support the rule and have lamented delays in its adoption.
The measure was tucked into the 2010 Dodd-Frank law amid concerns about the growing disparity between compensation for chief executives and their corporate workers.
"Pay ratio disclosure should provide a valuable piece of information to investors and others in the marketplace," SEC Democratic Commissioner Kara Stein said in prepared remarks.
Republicans and trade groups like the U.S. Chamber of Commerce have fought back against the measure at every turn, saying it will be too expensive, could mislead investors and is not material to a company's financial statements.
In a lengthy 2013 letter, the Chamber urged the SEC to defer working on the rule at all and instead conduct a pilot program and roundtable in order to come up with a different plan.
It also urged the SEC not to force companies to include the ratio in formal filings and allow them to place it into an addendum to help reduce their liability.
Both SEC Republican Commissioners are expected to staunchly oppose the rule on Wednesday.
Companies will have to start reporting the new pay ratio disclosures in the first fiscal year beginning on or after Jan. 1, 2017. (Reporting by Sarah N. Lynch; Editing by Lisa Von Ahn)