Business Roundtable, representing CEOs of leading U.S. companies from every sector of the economy, today raised questions about the efficacy, relevance and value to investors of the CEO pay ratio rule proposed by the Securities and Exchange Commission (SEC). The Roundtable noted that compliance with the proposed rule would be unnecessarily costly and burdensome and offered recommendations for revising it to make it significantly more practical to implement.

In a letter delivered to the SEC today, Alexander M. Cutler, Chairman and CEO of Eaton and Chair of Business Roundtable’s Committee on Corporate Governance, first expressed concerns with the proposed rule’s effectiveness and usefulness for investors:

“As an initial matter, we do not believe that the proposed pay ratio rules will provide investors with useful or accurate information. … Moreover, the proposed disclosure will exacerbate the growing length of required disclosures that make it difficult for investors to identify the material information that is relevant to their investment and voting decisions.”

Cutler then outlined a series of necessary revisions to make compliance possible and substantially reduce unnecessary burdens and costs:

• Limit coverage to U.S. employees – some Roundtable companies have employees in over 75 countries and operate over 100 payroll systems;
• Consistent with other applications of the disclosure rules under the federal securities laws, limit coverage to consolidated subsidiaries;
• Provide investors with more accurate information about a company’s compensation practices, and allow annualization of part-time, seasonal and temporary employees;
• Allow companies to maintain current compensation policies and procedures, and allow companies to use pay data from the most recent prior fiscal year;
• Permit two full years for implementation to permit companies to develop the processes, systems and training necessary to implement the rules; and
• Given the significant data involved and number of estimates, assumptions and judgment calls, the rules should permit the information to be “furnished” rather than “filed.”

The Roundtable also expressed concern about the cost and burden to companies associated with implementation.

“While we appreciate the Commission’s attempt to make it possible for companies to comply with Section 953(b) in a cost-effective manner, changes are necessary in order to prevent the disclosures required by the proposed rules from being prohibitively costly and burdensome,” Cutler added.

Click here to read the entire letter.
Click here to learn more about Business Roundtable’s Principles of Corporate Governance, including best practices for executive compensation.