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SEC Approves Rule on CEO Salary Ratio

Les Wexner, chief executive of Victoria’s Secret parent company L Brands, took home $24 million last year, while VF Corporation CEO Eric Wiseman raked in $18.7 million. How much did these two top dogs’ employees earn? Not even close to that amount—but the majority of publicly traded apparel companies don’t tell you how their salaries stack up against their workers’.

Soon, they’ll have to.

The Securities and Exchange Commission (SEC) approved a new rule Wednesday that will require public companies to reveal the pay ratio between their chief executive and their average worker. It will start to come into effect in 2017.

The 3-to-2 vote came five years after Congress approved the Dodd-Frank financial reform bill, which includes the pay-ratio rule, and nearly two years after the SEC formally proposed the requirement.

“The Commission adopted a carefully calibrated pay-ratio disclosure rule that carries out a statutory mandate,” said SEC Chair Mary Jo White. “The rule provides companies with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.”

According to the Economic Policy Institute, chief executives at the 350 largest U.S. companies by revenue today earn more than 300 times what their average employee makes, compared to 1978 when they earned about 30 times more than their workers.

The new rule will allow companies to use statistical sampling to define the compensation of their median employees once every three years and lets them omit non-U.S. workers from their tally. It will not apply to companies with less than $1 billion in annual gross revenue.

More than 280,000 public comments supporting the pay-ratio rule were submitted to the SEC, including, “As income inequality reaches unprecedented heights, the public has the right to know which corporations are fueling the yawning gap between rich and poor.”

But critics, including the U.S. Chamber of Commerce, have lashed out against it, saying the rule will cost companies more than $700 million a year to gather the information. The SEC, meanwhile, estimated it would cost about $73 million.