By Cydney Posner
You remember Section 953(b) of Dodd-Frank? That was the section that required companies to disclose in proxy statements and other filings the median of the annual total compensation of all employees of the issuer, excluding the CEO, the annual total compensation of the CEO and the ratio of the two. Under the statute, total compensation of an employee must be calculated in accordance with Reg S-K section 402(c)(2)(x) – the total compensation column in the summary compensation table, including salary, bonus, stock awards, option awards, non-equity incentive plan compensation, change in pension value and nonqualified deferred compensation earnings and all other compensation -- as in effect on the day before the date of enactment of Dodd-Frank. The section was adopted in response to the data showing significant growth in the U.S. in disparity between the incomes of the very rich on the one hand and the incomes of everyone else on the other. (See, for example, see the article from June 20, 2011.) However, the burden of collecting and analyzing all of the data required to complete these calculations, especially for large multinational corporations with complex pension and other compensation arrangements, triggered an outcry among companies and their advocates, who questioned whether the vast amount of work required to comply was really worthwhile. Moreover, the statute has broad application to a number of company filings under the Exchange Act and the Securities Act, and, because it is so prescriptive, the extent to which the SEC could, through regulation, mitigate its more onerous aspects has not been clear.
Not surprisingly, along comes H.R. 1062, the "Burdensome Data Collection Relief Act," the substance of which is a single paragraph that would repeal Section 953(b) and make any regulations issued pursuant to it of no force or effect. On Wednesday, the bill was considered by the House Financial Services Committee and a "mark-up" session held. The bill passed out of committee and was ordered to be reported out for a vote of the full House by a vote of 33 to 21. (Here you can see the actual handwritten record of the vote tally). Interestingly, Barney Frank offered an amendment (which, in my view, could have gone a long way toward making Section 953(b) workable) that went down to defeat by two votes on a straight party line vote. http://financialservices.house.gov/UploadedFiles/FC-45.pdf
That amendment would have required that the compensation ratio information be provided only annually and, with regard to the calculation of the median compensation of all employees, would have limited the information to only cash compensation and only domestic employees. (That's not to say that the amendment was faultless: the proposed changes would have left the resulting ratio open to the criticism that it was not an apples-to-apples comparison if CEO compensation were not similarly adjusted. However, proponents of Frank's amendment would probably contend that, in contrast to the bulk of employees, a significant proportion of CEO compensation is often not cash and, as a result, limiting CEO compensation to cash only would not fairly reflect CEO compensation.) The bill will undoubtedly pass the House as it stands (assuming it comes to a vote), but passage in the Senate is less clear. I would expect that some effort would be made to introduce amendments in the Senate similar to Frank's in the House.