EDITORIAL: SEC overreaches with CEO-employee pay-gap regulation

It's been said that there are two certainties in life: death and taxes. There is most definitely a third: the federal government will never cease in its zeal to regulate you into those first two certainties. The latest example of this comes courtesy of the Securities and Exchange Commission.

As reported by Reuters, the SEC voted Wednesday to order most public companies to reveal the pay gap between CEOs and their employees. The new rule, which will take effect in 2017, would force disclosure of chief executives' annual compensation and the median employee pay.

"Pay ratio disclosure should provide a valuable piece of information to investors," Democratic SEC Commissioner Kara Stein said.

The problem is, that's none of the SEC's business. The agency purportedly exists to protect the public by rooting out corporate wrongdoing, illegal activity, insider trading, etc. This regulation does none of that. Jazz Shaw of the conservative blog HotAir.com gets right to the crux of this rule: "The government is looking for a backdoor method of wealth-shaming executives and angering workers. … If the government can force the company to publish the information in shareholder reports, it will quickly leak out to the media and the public."

Indeed, contrary to what Ms. Stein posits, this information isn't for investors, whose due diligence means they are likely quite familiar with CEO pay. Rather, it's so those CEOs can be widely branded as the evil, greedy people they must be, right? Never mind that their success — read: their salary — is entirely predicated on how much revenue they can drive to the companies they run, thereby benefiting public shareholders.

Further, as with most regulatory overreach, the law of unintended consequences will likely come into play, as highlighted in a report by Emily Chasan of The Wall Street Journal. Said Bud Schiff, head of the executive compensation and benefits practice at Alvarez & Marsal: "The rules may inadvertently incentivize companies to outsource low-wage functions to third-party contractors, rather than maintain large numbers of lower-paid full-time employees, which may result in sending many jobs overseas."

In other words, due to compliance costs, people will lose their jobs over this needless policy. And although this regulation is clearly designed to shame Wall Street, that's not likely to happen, either. "Wall Street financial firms will not look bad compared with retailers and manufacturers with lower-wage employees or overseas factories," Mr. Schiff said.

It's another example of Washington, D.C., bringing you a solution in search of a problem. Reuters reported that corporate trade groups are widely expected to file a legal challenge. They should. But it would be better if the SEC dropped this ridiculous regulation.