SEC Proposes Pay Ratio Disclosure Rule

As part of the ongoing rulemaking efforts to implement portions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, the Securities and Exchange Commission (SEC) on Wednesday narrowly voted in favor of a proposal that would require public companies to disclose the ratio of their CEO’s compensation to the median compensation of their employees. The proposal does not provide a specific formula for arriving at this pay ratio.

Specifically, according to a fact sheet, the proposed rule would amend executive compensation disclosure rules to require companies to disclose: the median of the annual total compensation of all its employees except the CEO; the annual total compensation of its CEO; and the ratio of the two amounts.

Although the rule does not require any particular approach for arriving at these amounts, a company would have to disclose the methodology ultimately used to determine the median annual total compensation, and any material assumptions, adjustments or estimates used to identify the median or to determine total compensation.

Companies would not be required to disclose the pay ratio information “in reports that do not require executive compensation information such as current and quarterly reports,” nor would they need to update their disclosure “for the most recently completed fiscal year until the company files its proxy or information statement for its annual meeting of shareholders (or annual report for companies that do not file proxy or information statements for annual meetings).” 

Comments on this proposal will be due within 60 days of the proposal’s publication in the Federal Register.  Comments may be submitted electronically through the SEC’s Internet comment form, or the federal eRulemaking portal or via email to: Commenters are advised to include File Number S7-07-13 on the subject line.  Alternatively, written comments may be submitted to: Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.  All submissions should include File Number S7-07-13.

Photo credit: Ramy Majouji

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.