SEC approves rule requiring companies to report CEO-worker pay gap

The U.S. Securities and Exchange Commission has approved a new rule that will require most public companies to show how their chief executive’s compensation compares with the median pay of all their other employees.

The rule, included as part of the 2010 DoddFrank Wall Street Reform and Consumer Protection Act, which was passed in response to the Great Recession of 20082009, was approved Wednesday by a vote of 32.

SEC Chairwoman Mary Jo White, who voted in favor of the rule, said it is “both flexible and faithful to the terms and objective of the statute.”

The rule requires large publicly listed companies to regularly report their “pay ratio,” or the gap between the CEO’s compensation and that of the average worker.

“Pay ratio disclosure should provide a valuable piece of information to investors and others in the marketplace ... about how a company manages human capital,” one of the SEC’s Democratic commissioners, Kara Stein, said.

But Daniel M. Gallagher, one of the commission’s two Republican commissioners, both of whom voted against the rule, said it “may be the most useless of our DoddFrank mandates.”

The requirement will kick in for 2017 fiscal year reporting.

Growing income disparity in the United States has become a highly charged, partisan political issue.

Fifty years ago, the compensation of leading American companies’ chief executives was roughly 20 times that of their average employee, while in 2013 top CEOs in the United States made 300 times more than typical workers, according to a recent study by the Economic Policy Institute.

Gallagher, however, said “addressing income inequality is not the province of the SEC.”