House Republicans Ask SEC to Delay Pay Ratio Rule, Focus on Other Rulemakings

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By Rob Tricchinelli

Nov. 26 — A trio of House Republicans wants the Securities and Exchange Commission to delay finalizing its proposed rule that would require disclosure of the pay of a company's chief executive compared to other employees and instead focus on different rulemakings.

“Prioritizing completion of the pay ratio rule will continue the SEC's practice of misallocating limited resources to nonessential projects rather than completing rulemakings and other responsibilities central to its statutory mission,” states a Nov. 24 letter to SEC Chairman Mary Jo White from Reps. Jeb Hensarling (R-Texas), Scott Garrett (R-N.J.) and Bill Huizenga (R-Mich.).

White has said she hopes to complete the rule, among others related to executive compensation, by the end of the year.

The lawmakers said the rule, which is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, has nothing to do with the causes of the financial crisis. They asked the SEC for details on the “funds and man-hours” used in formulating the rule.

Rule

Dodd-Frank Section 953(b) requires the SEC to write a rule mandating that companies disclose “the median of the annual total compensation of all employees of the issuer, except the chief executive officer,” along with the CEO's pay and the ratio of the two.

The lawmakers said the disclosures that would result from the rule “do not provide useful information about a company's operations, performance or pay practices,” making them “immaterial, and at worst, confusing to investors seeking to make informed investment decisions.”

Hensarling is chairman of the House Financial Services Committee and Garrett leads the related Capital Markets Subcommittee. Huizenga will take over as chairman of the Monetary Policy Subcommittee in 2015.

They also echoed concerns from businesses that don't have automated global payroll systems and have said the median pay will be difficult to calculate.

“The SEC cannot ignore the very real and permanent compliance costs that the pay ratio rule will impose on all public companies,” the letter states.

Alternatives

Instead of the pay ratio rule, the trio said the agency should focus on rulemakings under Dodd-Frank and the Jumpstart Our Business Startups Act that are designed to foster capital formation.

The SEC is behind its statutory deadlines on rulemakings under Dodd-Frank and the JOBS Act.

The lawmakers said the agency should first strip credit rating agency reliance from its rules, complete derivatives rulemakings under Title VII of Dodd-Frank and determine whether to modify the definition of an “accredited investor.”

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Susan Jenkins at mailto:%20%20sjenkins@bna.com

The lawmakers' letter is available at http://op.bna.com/car.nsf/r?Open=rtuk-9r8sv9.