Some things like wine or scotch improve with time. Bad regulations though, do not. In fact, if anything, more time just makes it clear how unreasonable some ideas really are.
This is why manufacturers applaud Rep. Huizenga (R-MI) for reintroducing “The Burdensome Data Collection Relief Act” H.R. 414 earlier this month. This bill seeks to repeal a particularly unreasonable provision of the Dodd-Frank Act, Sec. 953(b), also known as the “pay ratio requirement.” Already this common-sense bill has 16 cosponsors.
Throughout the Congressional consideration of the Dodd-Frank Act, the NAM urged Congress to focus their efforts on strengthening the U.S. financial system and avoiding new regulations that could be costly and hinder job creation for manufacturers and other nonfinancial companies that had nothing to do with the financial crisis. One example of a costly regulation that raised our concerns is the so-called “pay ratio requirement.” This provision requires companies to regularly disclose the ratio of employees’ median pay to the compensation of the company’s chief executive. This represents a costly and onerous administrative burden on companies that will not produce useful information for investors.
According to the Dodd-Frank law, the Securities Exchange Commission to is responsible for promulgating rules on the implementation of this onerous reporting requirement. In the fall of 2013 the SEC released a proposed rule for public consideration and even as they released their proposal they acknowledged that, “neither the statute nor the related legislative history directly states the objectives or intended benefits of the provision or a specific market failure, if any that is intended to be remedied.” However, despite the absence of a clear benefit, companies will be required to incur significant financial cost, dedicate substantial man-hour resources and overcome numerous administrative challenges in order to attempt to comply with the proposed rule.
The idea that a single statistic, like the pay ratio, could be an indicator of a company’s approach to compensation practices, business strategy, or hundreds of other decisions that comprise their business plan is false and overly simplistic. Manufacturers pointed out in our comments in response to the release that we agree with the SEC, “that using the ratios to compare compensation practices between registrants without taking into account inherent differences in business models, which may not be readily available information, could possibly lead to potentially misleading conclusions and to unintended consequences.”
The requirement was put into Dodd-Frank without having had the benefit of a full airing and deliberation to consider the cost of collecting this information. Rep. Huizenga’s bill would do the sensible thing and repeal this onerous requirement before companies have to dedicate millions of dollars to complying with a rule that was enacted into law without any consideration. Now is the time, after all, this requirement isn’t improving with age.
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