Why the overdue SEC rule will underestimate the gap between CEO and worker pay
In 2010 — five years ago — the U.S. Congress passed into law a requirement that publicly-traded corporations must publicly reveal the gap between the pay for their CEOs and the pay for the rest of their employees. It wasn’t until yesterday that the Securities and Exchange Commission finally followed the law and enacted a regulatory rule for corporations to follow (read the text of the rule as of 2013 here). The SEC delayed further compliance by decreeing that corporations won’t have to make disclosures until 2018 — eight years after Congress passed the requirement into law.
The two Republican members of the SEC, after drawing out the process as long as they could, voted against compliance with the law. Let’s not pretend, however, that the public opinion is split. It’s not, as a SEC summary of 307,012 submitted comments into 13 categories of opinion reveals. Every single one of those submitted comments supports the enactment of the rule — and a number chide the SEC for delaying action so long. What are the numbers of comments opposing enactment of the rule? About a hundred, offered by paid officials at large and wealthy corporations, like the Garmin corporation of Switzerland, or by interest groups for chief executives like the National Association of Corporate Directors. The three Democratic commissioners, with great reluctance and after great delay, are following the law and the comments of the 307,012. The two Republican commissioners, in voting against implementation of the rule, are struggling against the law and standing instead with the comments of the hundred. This is what plutocracy looks like.
Data collection will be incomplete: only corporations with over a billion dollars in annual revenue must comply. More importantly, when reporting finally occurs after eight years of delay, the ratio of CEO to average worker pay will underestimate the gap. As outlined in page 23 of the rule, the compensation of independent contractors, subcontracted workers, temporary workers and “leased workers” will not be counted. These stand among the most vulnerable and exploited of workers for massive multi-billion-dollar corporations. In the 2013 version of the rule, the pay of workers for a corporation who live outside the United States were to be counted. In the version of the rule approved yesterday, corporations are allowed to exclude these workers from the count.
Why are these exclusions important? One important word on the subject: sweatshops. If the large number of subcontracted or “leased” workers who make $5 a day in third-world sweatshops are included in the count, many corporations’ median wages would be exposed as abysmal. We should therefore be unsurprised to find that the “American Apparel & Footwear Association,” featuring corporations dependent on sweatshops among its members, has opposed the rule so strenuously. When, three years from now, eight years late, you start to see CEO-to-average-worker ratios, remember those workers who linger in dark shadows, uncounted.