A statement released last week by U.S. Securities and Exchange Commission’s Luis A. Aguilar received a prompt response last Thursday from the HR Policy Association’s Center on Executive Compensation.
Specifically, it was the pay-ratio component of the commissioner’s comments that caught the HRPA’s eye.
Aguilar noted in his statement, titled “Shareholders Need Robust Disclosure to Exercise Their Voting Rights as Investors and Owners,” that …
“The relative pay of different classes of employees, such as the ratio between CEO compensation and median pay, can also create risks to an enterprise, including the risk of employee, customer, and shareholder discontent. Decisions regarding executive compensation may also affect succession planning and related risks. Companies should consider whether additional disclosure is necessary to enable stockholders to assess such risks and the manner in which any such risks may be affected by a company’s compensation policies and practices.”
(Check out this Reuters’ story for more.)
A provision in the Dodd-Frank Act, the notion of pay ratios has drawn fire from HRPA’s Center in the past.
In response to Aguilar’s most recent statement, CEC President Timothy J. Bartl said …
While we were encouraged that the statement recognized the value of supplemental executive compensation disclosures to investors in explaining the pay for performance relationship, we were disappointed that Commissioner Aguilar encouraged companies to voluntarily disclose a pay ratio in their 2013 proxies, given that investors have not expressed broad interest in this information and the Commission has not yet issued final rules.
In evaluating whether to make such disclosures, Commissioner Aguilar asks companies to be ‘guided by a clear vision of the investors who are relying on the disclosure to make important voting and investment decisions.’ Yet, the Center has found that, unlike pay for performance, investors are generally not asking for pay-ratio information, and where shareholder proposals have been offered on the pay ratio, support from shareholders has been very low.
“It’s pretty unusual for the commission to put out a statement advocating company actions,” Bartl told me this morning. “It’s more typical for these be expressed through speeches or other channels.”
Through his statement, Bartl says, Aguilar is urging companies to take voluntary steps, in light of the fact that the SEC is not close to taking action on rules, given the current status of the commission with two commissioners from each party following the departure of SEC Chairman Mary Schapiro in December.
But if Bartl is correct, he probably shouldn’t hold his breadth on this particular front.