'Pay Ratio Provision' in the Dodd-Frank Act: Legislation to Repeal It in the 113th Congress [October 28, 2013] [open pdf - 387KB]
"Section 953(b) of the Dodd-Frank Consumer Protection and Wall Street Reform Act (Dodd-Frank Act; P.L. 111-203), known as the 'pay ratio provision,' requires the Securities and Exchange Commission (SEC) to write rules to implement a requirement that public companies disclose the ratio between the total compensation of a company's chief executive officer (CEO) and the median compensation of all other employees. On September 18, 2013, the agency released proposals to implement the pay ratio provision. A firm will be able to choose its own methodology to calculate worker median pay, including statistical sampling. Supporters of the provision, including its sponsor Senator Robert Menendez, argue that the public company data on CEO-worker pay disparity that will result from the provision will pressure corporate boards to be more restrained in pay packages to CEOs. The strategy can be seen as a measure to address what some describe as a board/CEO dynamic that can result in perceived excessive compensation for CEOs: board members may feel beholden to the CEO, who may also serve as board chair. Research consistent with this notion of insufficiently independent boards exists. Other research, however, appears to be consistent with the view that public company CEOs operate in a generally competitive marketplace in which the value that they give to shareholders is fairly compensated."
CRS Report for Congress, R43262