I recently provided insight for an article published in Compliance Week on the SEC’s pay ratio rule, which will require companies to disclose for the first time in their 2018 proxy statements the ratio between the median annual total compensation of all employees and the annual total compensation of its CEO. While the rule has brought some opposition, companies should still keep an eye out for developments in Washington and the SEC, but should not have unrealistic expectations. As I point out in the article, “given all the dynamics and the make-up of the Commission still evolving, companies should proceed with things the way they are now, with the rule in effect.” While there may be possibilities for some type of alleviation, companies should not rely on that to avoid delaying any adjustments needed to be made in preparation.
While I think the SEC could have been more strict with how companies must calculate their ratio and that there is currently some flexibility with the rule. Additionally, as I point out, “for companies, it will take some time to understand what their process is, what analogies they need to make, and what needs to be disclosed.” Companies may also need additional disclosure to help clarify the ratio to investors and mitigate the reputation risk. I further detailed that “there will be some crafting of language around the ratio itself, disclosing why the number is the way that it is.” It is likely “investors are going to ask management questions anyway, and providing the voluntary disclosure or other disclosures may be helpful to brunt any blow back to the extent that there is some.”
The full article, “SEC’s Controversial Pay Ratio Rule Still Alive and Problematic,” was published in Compliance Week on September 12, 2017, and is available online (subscription required).