President Obama stands with Sen. Christopher Dodd (D-Conn.), center,… (Charles Dharapak/AP )
Soon after Congress approved the largest overhaul of financial regulation in generations, the Securities and Exchange Commission moved to enforce what it considered one of the simpler parts of a mammoth and complicated law.
The provision required companies to disclose how much more their chief executives made than other employees. All the agency had to do was write a rule telling firms how to comply.
Nearly three years later, the rule remains unfinished, with no sign of when it will be done.
Within six months of the law’s passage in 2010, SEC staffers had circulated an early blueprint for the pay rule. They set a deadline for completing it by the end of 2011. The public was outraged over runaway executive compensation, and the pay disclosure seemed relatively straightforward, at least compared with many of the law’s other requirements.
What the agency did not count on was the resistance mounted by big business. A lobbying campaign waged by business executives and the nation’s most prominent corporate associations undercut the momentum and effectively brought the agency’s work on the rule to a standstill, according to interviews with SEC insiders and others familiar with discussions about the requirement.
The efforts of business groups to influence the SEC’s work was especially effective because of their success in pressing a court challenge to another part of the financial overhaul legislation — in essence, an extension of their lobbying efforts. The threat of additional lawsuits has hung over the discussion between lobbyists and agency officials about the pay rule, and some opponents have warned that the agency could be sued again if it enforces it.
“I don’t think folks anticipated the complexity or controversy. . . . The corporate community pushed back,” said Scott Kimpel, former counsel to Republican SEC commissioner Troy A. Paredes and now a partner at Hunton & Williams. “The lobbying alerted [the commissioners] to the fact that there were issues and dissensions. . . . People back-burnered it.”
SEC officials, who had hoped the pay rule would be completed quickly, missed their 2011 deadline. Then they missed another self-imposed deadline a year later.
As the third anniversary of the financial overhaul legislation known as Dodd-Frank approaches this month, the fate of the executive compensation provision exemplifies the problems dogging one of President Obama’s signature accomplishments.
Designed to prevent a repeat of the 2008 financial meltdown, the law grants broad powers to federal watchdogs to rein in Wall Street abuses and other corporate practices. Yet the regulators who must enforce it are far behind. Federal agencies writing the specific rules to carry out the law have missed nearly two-thirds of the deadlines set by Congress, according to numbers compiled by Davis Polk, a law firm that represents many financial companies.
Dozens of provisions — pertaining to banking, trading in financial securities, mortgage lending and other areas — have run into delays for reasons that experts say include their complexity and understaffing at agencies.
And as the economy has recovered from the devastation of the financial crisis, business lobbying has continued even as public attention has moved on.
Business interests, which vigorously opposed much of the law before Congress approved it, have been trying to influence or roll back various provisions with backroom advocacy and courtroom challenges. The pay disclosure — which requires public companies to reveal their chief executives’ total compensation, the median compensation of all other employees, and the ratio between the two — has aroused particular ire.
Lobbyists and former SEC officials described a campaign to weaken or completely block pay disclosure, known as the “pay ratio” rule, that has been fierce and unyielding. Scores of companies and associations have lobbied on the specific provision since Dodd-Frank’s passage, including IBM, McDonald’s, AT&T and the New York Stock Exchange, lobbying records show. Leading the fight are the Center on Executive Compensation, the U.S. Chamber of Commerce and other corporate associations that represent hundreds of thousands of businesses.
Lobbyists have also targeted Congress. A House committee last month approved a bill to repeal the pay ratio provision, though immediate passage by Congress is unlikely.
“It’s lunacy,” said Mark Poerio, an attorney for the American Benefits Council, one of many who have pressed the case against the provision in discussions with the SEC. Poerio and others from the council, which represents companies providing employee benefits, met with agency officials in April to argue that it would be extraordinarily difficult for firms — which already must disclose the pay and benefits given to five top executives — to calculate that information for employees worldwide.