WASHINGTON ― The Trump administration’s review of Dodd-Frank Wall Street regulations will take months to complete, but we already know the first rule to be targeted. This week, acting Securities and Exchange Commission Chair Michael Piwowar directed the agency’s staff to “reconsider” a rule on CEO pay long championed by Sen. Elizabeth Warren (D-Mass.).
The regulation would require corporations to disclose the discrepancy between what their CEOs earn and what their ordinary workers take home. It’s perhaps the simplest proposal in Dodd-Frank. Once a year, companies have to present the ratio of their CEOs’ pay to the median annual pay among all their employees.
The executive class howled in protest, offering a litany of excuses. It was too hard to calculate. Foreign workers should be excluded. Running the numbers would be too expensive. Nobody would really make an investment decision based on this stuff. Above all, the SEC had to delay the rule so companies could figure out … something. This week’s move by the SEC is the latest in a nearly seven-year series of the agency’s capitulations to CEOs.
“Issuers are now actively engaged in the implementation and testing of systems and controls designed to collect and process the information necessary for compliance,” Piwowar explained. “However, it is my understanding that some issuers have begun to encounter unanticipated compliance difficulties.” He asked for a new round of public comments on the rule, and directed staff to determine if any “additional guidance or relief may be appropriate.”
In other words, the rule is dead.
The pay-ratio rule wouldn’t be revolutionary for financial markets or the investment world. It wouldn’t cure economic inequality, only provide some more data points for the people who study it. But the SEC’s hostility toward the regulation reveals a lot about whom the agency’s leaders think they work for. Sure, it would be embarrassing for a lot of CEOs who don’t pay their workers well. So what?
The SEC didn’t issue a proposal for the pay-ratio rule until late 2013, three years after Dodd-Frank was passed. Piwowar, then a commissioner rather than the agency’s acting chair, objected to even presenting the regulation for public comment, declaring the entire project a cheap attempt to “shame” CEOs.
After offering the rule, SEC Chair Mary Jo White ― an Obama appointee ― sat on it for more than two years, only finalizing it in August 2015, after a bitter public feud with Warren and Sen. Robert Menendez (D-N.J.). But corporate executives weren’t done lobbying against it, even though the ultimate product had granted them a host of loopholes that would help companies skew median employee pay upward. Firms were allowed to exclude up to 5 percent of foreign workers from the calculation, for instance, and cherry-pick the size of their workforce from any date within the final three months of its fiscal year. More importantly, since the final rule wouldn’t force companies to actually disclose anything until 2018, it bought the executive class nearly two and a half years to keep fighting.
White left office a controversial figure. In addition to slow-walking the pay-ratio rule and angering Warren ― who called for then-President Barack Obama to remove her from office ― White angered Sen. Chuck Schumer (D-N.Y.) for burying an effort requiring corporations to disclose their political spending.
“You’re hurting America,” Schumer (D-N.Y.) told White at a hearing in late 2016. “Your priorities are out of line with what corporate America needs and America needs, and I hope when you go to bed late at night, you would think about that.”
Obama stood by his embattled appointee at every turn, though she left office with 19 Dodd-Frank rules yet to be finalized. The first orders of business for her successor have not indicated any sense of urgency to move them forward.
This is probably how financial reform will be unwound ― not through flashy executive order signing ceremonies, but through slow strangulation by the agencies trusted to write rules and enforce them. And in some cases, President Donald Trump will be building on Obama’s own work.