Soon after Donald Trump's election, a rule that would require companies to disclose a potentially embarrassing math calculation for the first time next year — a ratio of what their CEO makes compared to their median worker — was thought to be a goner.
For one, the rule was part of the Dodd-Frank legislation that Trump's transition team had promised to "dismantle," a move that seemed all but assured with a Republican-controlled Congress. Pay experts thought it would get the ax. And in early February, then-acting Securities and Exchange Commission Chairman Michael Piwowar, who had written a stinging dissent of the rule last year, opened a comment period to let companies weigh in on the challenges they were facing and said he had directed his staff to "reconsider the implementation of the rule based on the comments."
But midway through 2017, companies now find themselves staring down deadlines for calculating and disclosing the controversial number, at least for next year, which many of them have said is difficult given the complexity of today's global workforces.
"Originally, a repeal looked like a no-brainer," said David Wise, a senior client partner at Korn Ferry Hay Group. "But Washington is inundated with bigger issues than this one."
As a result, lawyers and consultants with compensation expertise say they are flooded with calls from companies preparing to address the issue. "Through June 30, or at least through the early part of this year, there was fairly bullish optimism that the rule would be either repealed or delayed," said Jim Barall, a senior fellow in residence at the Lowell Milken Institute for Business Law and Policy at the UCLA School of Law. "But as summer wears on and we head into the busy fall season, I can tell you they are realizing they need to focus on this if they haven't."
Larger S&P 500 companies have probably been working on the calculation for a while given the size and complexity of their workforces, Barrall said. But smaller companies that "have been whistling by the graveyard, hoping this would go away, have to focus on the realistic possibility that the rules will not be repealed or delayed and will require full disclosure in their 2018 proxies."
There are several reasons, executive pay experts said, that the view has shifted, at least temporarily. While a repeal of the ratio was included in the Financial Choice Act that passed the House in June, legislation that would ease banking regulations has been seen as a protracted battle. "The chances of that making its way through the Senate are rather limited," said Steve Seelig, a senior regulatory adviser for Willis Towers Watson, a human resources consulting firm. Especially doing so quickly: Seelig said many companies will be trying to complete the calculation by Oct. 1, before they head into the busy year-end season, even if they remain "hopeful someone will sweep in and tell them they don’t have to disclose" in their filings next year.
Meanwhile, much bigger battles such as the one over health care or tax reform are expected to take priority in a White House that is still yet to see its first major legislative victory. "In January, the betting man in me said this will be repealed in 2017," Wise said. "Here in July, the betting man in me says this will be in place next year, only because of the traffic in the queue. You've got some big, big trucks in front of you."
And while the SEC could try to delay the rule, a bare-bones commission means for now, the lone current Democrat could choose to decline to attend the vote, said Seelig, preventing a needed quorum. A spokesman for the SEC declined to comment on upcoming plans; a White House spokeswoman was not immediately able to respond to a request for comment.
The rule, a last-minute addition to the Dodd-Frank financial reform act in 2010, was finalized by the SEC in 2015 and requires 3,800 public companies to disclose the figure in filings they release to investors in early 2018 for their 2017 fiscal year. Companies have been big opponents, arguing the ratios set up unfair comparisons between industries where the median worker makes relatively more or less — financial services vs. retail, for instance — and offer little new information for investors since executive compensation data is already disclosed.
Those in favor say it could provide added pressure on skyrocketing CEO pay and help shareholders spot companies that view employees as real assets rather than costs. It could also help Americans get a better grasp of how wide the gap between average workers and their CEOs really is: One study from 2014 found that Americans think the gap between executives and unskilled workers is about 30 to 1, when it was actually more than 300 to 1, according to some estimates.