U.S. Chamber Report Finds SEC Woefully Underestimated Impact of Proposed Pay Ratio Rule

Thursday, May 22, 2014 - 9:00am

White Paper Concludes Compliance Costs Could Exceed $700 Million

WASHINGTON, D.C.—The U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC) released a white paper today examining the Securities and Exchange Commission’s (SEC) Pay Ratio Rule; which requires corporations to calculate the ratio between their CEO’s compensation and that of their median worker. The paper, prepared by Capital Policy Analytics, analyzes survey data from more than 100 companies, and finds there is strong evidence that the current cost-benefit analysis by the SEC woefully underestimated direct costs by 870% and the time that companies will spend complying with the rule by 560%.

“The pay ratio is the poster child of ineffective disclosure. We believe it is important for the SEC to get this rule right to ensure investors have access to information that helps not hinders the investor decision making process,” said Tom Quaadman, vice president of CCMC. “Unfortunately, ratios will vary widely from company to company or industry to industry depending on corporate structures, providing little comparable use to investors but rather adding to the complexity of the decision making process and giving adversaries a new target. Rather than providing useful information to investors, the Pay Ratio will simply be used as a scarlet letter.”

The white paper, titled “The Egregious Costs of SEC’s Pay Ratio Disclosure Regulation,” notes that the ratio would be a fundamentally misleading and flawed statistic as it does not shed additional information on company performance, investor protection, or even income inequality. In fact, the ratio would be driven by industry and corporate structure.

“We hope the SEC finds this data useful as they finalize the rule in such a way that contributes to effective disclosure for investors while not placing undue burdens on American businesses,” said Ike Brannon, president of Capital Policy Analytics. “As it stands, the rule offers no discernible benefits for investors, businesses, or the broader economy and it is hard to understand the economic or logical argument behind it.”

The full white paper is available here.

Since its inception in 2007, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets.

The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.