WASHINGTON, DC – Citing a recent report which found an alarming 1000-to-1 pay disparity between fast food CEOs and their front line workers, Senator Menendez again called on Securities and Exchange Commission Chair Mary Jo White to finalize its rule requiring publicly traded companies to disclose the ratio between the compensation of their CEO and median worker, as directed by Section 953(b) of the Dodd-Frank “Wall Street Reform Act”.
In a letter to SEC Chair White, Menendez underscored the need for more transparency in pay, pointing to findings in Fast Food Failure, a report by the public policy organization Demos which illustrates the significant disparity between CEO and worker pay, particularly in the fast food industry, writing: “In addition to the human costs, the report notes evidence to suggest that high levels of pay disparity undermine firm performance due to labor unrest, lower levels of customer satisfaction, and exposure to other costs associated with extreme disparity. The report concludes that corporate shareholders need better information on pay disparity in order to assess the relative risk of competing investment options.”
“Our research is clear. The fast food industry is leading the trend of pay disparity in the US, which is hurting the industry as well as the economy overall,” said Catherine Ruetschlin, a policy analyst at Demos and author of the report. “Finalizing the proposed disclosure rule would ensure that investors receive valuable information about the risks that accompany income inequality, and would serve to push the industry to take the high road and address this important issue.”
“This information is extremely important to investors and it’s also important to boards of directors in their oversight of compensation and the risks involved in compensation within corporations.” Eleanor Bloxham, CEO of The Value Alliance. "The fast food industry is a prominent example of the emerging risks of under-investment in human capital and of the potential consequences for shareholders and the business models of those firms.”
Menendez authored the transparency provision as part of Wall Street Reform, which became law in July 2010. On September 18, 2013, the SEC voted 3-2 to propose the new rule that would require public companies to disclose the ratio of the compensation of their chief executive officer to the median compensation of their employees. A 60-day public comment period followed, which ended on December 2.
During that comment period, the Senator led a letter from several Democratic senators in support of the requirement, noting that over the last twenty years, “incomes for the top 1 percent of earners have grown by more than 86 percent, while incomes for the other 99 percent have grown by less than 7 percent. . . Especially in this environment, investors need to know to what extent skyrocketing disparities between CEO and worker pay are justified based on performance or simply reflect value capture by insiders.”
The full text of his letter follows.
The Honorable Mary Jo White
United States Securities and Exchange Commission
100 F Street, NE
Washington, D.C. 20549
Dear Chair White:
I am writing to bring to your attention new information about pay disparity revealed in a report entitled Fast Food Failure, which the public policy organization Demos released on April 22, 2014. This report illustrates the significant disparity between CEO and worker pay, particularly in the fast food industry, and highlights the value of additional transparency in this area. As you know, I and twelve other senators wrote a letter in support of the Securities and Exchange Commission’s proposed pay ratio disclosure rule on November 26, 2013, and I hope the Commission will move swiftly to finalize it.
The report analyzed recent filings from publicly traded corporations and found large disparities between CEO and average worker pay. In particular, it concluded that the fast food industry is particularly egregious in this regard, with a CEO-to-average worker pay ratio of over 1,000-to-1 in 2013. In addition to the human costs, the report notes evidence to suggest that high levels of pay disparity undermine firm performance due to labor unrest, lower levels of customer satisfaction, and exposure to other costs associated with extreme disparity. The report concludes that corporate shareholders need better information on pay disparity in order to assess the relative risk of competing investment options.
The findings of this report provide new impetus for the SEC to expeditiously finalize the proposed rule requiring publicly traded companies to disclose the ratio between the compensation of their CEO and median worker, as directed by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Currently, investors have access to data on CEO pay, but until the pay-ratio rule is finalized, investors will have only imprecise data to assess the other half of the pay disparity equation, the typical pay of workers in the firms they own. This is information that investors need and have a right to know.
Once again, I commend the SEC under your leadership for proposing a rule to implement the CEO-to-worker pay ratio disclosure requirement and urge the SEC to move forward without delay to finalize the rule.
United States Senator