Shareholders Will Benefit From New CEO Pay-Disclosure Rule

September 20, 2013
By Haeggquist & Eck

It’s no secret that executives of companies earn more than the average worker. However, the pay disparity between CEOs and workers has skyrocketed over the past 30 years. In 2012, CEOs in the S&P 500 index earned 354 times more pay than other workers, as compared to 30 years ago, when CEOs earned about 42 times more than the average worker.

Thanks to a recent vote by the U.S. Securities and Exchange Commission (“SEC”), CEO pay is likely to become more transparent to shareholders. On Wednesday, the SEC voted on a proposed rule that will require public companies to disclose how much their CEOs earn compared to their other workers. Public companies will be required to include a ratio of CEO-to-worker annual compensation in their regulatory filings.

The rule will deliver important additional information to shareholders. According to Commissioner Luis Aguilar, “As owners of public companies, shareholders have the right to know whether CEO pay multiples reflect CEO performance. Shareholders have the right to know how their company’s internal pay comparisons may impact employee morale, productivity, hiring, labor relations, succession planning, growth and incentives for risk-taking.”

The next step for the rule is a 60-day public comment period.

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