Sides are split, contention rules.

• Author: Elson, Charles

Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandates that the SEC amend Item 402 of Regulation S-K to require disclosure of the ratio between the pay of a company's CEO and the pay of its median employee. This will force most U.S. public companies to calculate the total compensation of their median employee and disclose, in any proxy or information statement that requires executive compensation-related disclosure, the ratio between that figure and the total compensation of its chief executive officer.

The split 3-2 vote by the SEC on whether to propose this rule in the first place reflects the contentious nature of the requirement itself. Commissioner Daniel M. Gallagher released a dissenting statement that characterized the pay ratio as "another page of the Dodd-Frank play-book for special interest groups who seem intent on turning the notion of materiality-based disclosure on its head." Commissioner Gallagher asserted that the ratio would provide no benefits ("no--count them, zero--benefits that our staff have been able to discern") while imposing a significant cost burden on the affected issuers. In his view, despite the Congressional mandate, the SEC should not have moved forward on the rulemaking when it did. Commissioner Michael S. Piwowar, in an equally strong dissent, stated that the SEC "should not be spending any of its limited resources on any rulemaking that unambiguously harms investors, negatively affects competition, promotes inefficiencies, and restricts capital formation."

On the other side of the split, Commissioner Luis A. Aguilar wrote that the SEC had taken an important step in proposing the pay disparity rule which would produce "better disclosure and accountability regarding executive...