New Federal Regulation Requires Businesses to Disclose CEO-to-Employee Pay Ratios

staircase-298707_640.jpgThe wage gap has become a matter of serious concern for many in this country. Various reports show income rising for many business executives, while wages stagnate, or even decline, for most working people. Employment statutes at the federal, state, and local levels protect workers against a wide range of untenable employment situations and unjust acts by employers, but this does not include a wide disparity in pay between a company’s low-level employees and its chief executive officer (CEO). The Securities and Exchange Commission (SEC) issued a final rule in early August 2015 requiring publicly traded companies to disclose the ratio between CEO salary and median employee compensation. This rule implements a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), Pub. L. 111-203, but it has been the subject of substantial criticism from the business sector. It might not have an immediate impact on improving employees’ workplace rights, but it could be an important step in that direction.

Employees in New Jersey are generally protected from workplace discrimination and harassment, based on factors such as race, sex, religion, and national origin, by the New Jersey Law Against Discrimination (NJLAD), N.J. Rev. Stat. § 10:5-1 et seq., and Title VII of the federal Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. The NJLAD includes additional categories of protection, such as sexual orientation and gender identity. The New Jersey Wage and Hour Law (NJWHL), N.J. Rev. Stat. § 34:11-56a et seq., sets a statewide minimum wage and establishes rules for overtime compensation. At the federal level, the Fair Labor Standards Act (FLSA), 29 U.S.C. § 201 et seq., performs a similar function, albeit with a lower minimum wage.

These laws could work together to protect employees in a situation where certain employees receive lower pay than other employees with the same or similar qualifications, performing the same or a similar job, if the disparity is related to one or more of the categories protected from discrimination. Nothing in state or federal law says that a CEO’s pay cannot be higher than an employee’s pay, and despite some particularly heated political rhetoric, no one is suggesting a rule like that. The issue is that many workers put in 40 or more hours of work per week, and yet they struggle to make ends meet, even frugally. The SEC’s regulation does not directly address this issue, nor issues of employee wage complaints, but it helps put these issues closer to the front burner, so to speak.

Dodd-Frank directs the SEC to amend the rule codified at 17 C.F.R. § 229.402, which deals with executive compensation. Publicly traded companies are already required to disclose the CEO’s compensation. The new rule requires them to disclose “the median of the annual total compensation of all employees…, except the chief executive officer (or any equivalent position..”, Dodd-Frank at § 953(b)(1)(B), and to state the ratio between the two. Certain smaller companies are exempt from the requirement, but it applies to most large employers.

One of the most controversial aspects of the new rule is its broad definition of “employee” for the purposes of determining median employee compensation. The SEC defines “employee” to include not only full-time employees but also part-time employees, seasonal and temporary workers, and in some cases, employees in locations outside the United States. Certain business interests have hinted at litigation to attempt to stall or modify the rule, but currently, it is set to take effect in January 2017.

The Resnick Law Group’s wage violation attorneys represent current and former employees and job seekers in New Jersey and New York in employment law claims for wage and hour violations and other matters. To schedule a confidential consultation, contact us today online, at 973-781-1204, or at 646-867-7997.

More Blog Posts:

New Laws Require Employers in Some New Jersey Cities to Provide Paid Sick Leave to Employees, The New Jersey Employment Law Firm Blog, August 6, 2015
Lawsuits, Pending Legislation, Address Question of Whether NFL Cheerleaders Are Employees or Independent Contractors, The New Jersey Employment Law Firm Blog, June 4, 2015
The Distinction Between an “Employee” and an “Independent Contractor” is Critical in New Jersey Employment Law Claims, The New Jersey Employment Law Firm Blog, May 22, 2015
Photo credit: perh56 [Public domain, CC0 1.0], via Pixabay.

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