The SEC requested industry feedback on the
pay ratio disclosure rule in response to unanticipated
compliance difficulties reported by issuers. SEC Acting Chair
Michael S. Piwowar called on Commission staff to
"reconsider the implementation of the rule" and consider
additional guidance or relief.
The SEC adopted the
pay ratio disclosure rule in August 2015 in order to implement
Dodd-Frank Section 953(b). As explained previously in a
Cabinet news article, the adopted rule requires a public
company to disclose (i) the median of the annual total compensation
of all its employees, except that of the CEO, (ii) the annual total
compensation of its CEO, and (iii) the ratio of those two amounts.
Although the rule allows a company to choose a methodology based on
that company's own facts and circumstances to identify the
"median employee" and his or her compensation, the rule
imposes limitations that could make this determination complicated
for companies. Currently, companies are required to report the pay
ratio disclosure for the first fiscal year beginning on or after
January 1, 2017, which would result in disclosure in 2018.
This is a swift but ultimately unsurprising directive from
Republican Acting Chair Piwowar, who strongly criticized the pay
ratio rule when it was adopted in 2015. Under the Donald Trump
administration, there will be a change in direction with respect to
the regulation of executive compensation and related corporate
governance issues. This action is in line with the new
leadership's intent to dismantle Dodd-Frank and curb
regulations on corporations generally. Despite these views, and the
significant possibility that the pay ratio rule may be repealed
before disclosures are ever required, shareholders and corporate
governance watchdogs likely will continue to promote a close
examination of executive compensation and related topics, which may
result in limited practical change for companies even if
regulations are curbed. Because the pay ratio rule is in effect for
now, and disclosure is set to be required starting in 2018 to cover
2017 compensation, companies should continue to act as if the rule
will go into effect until it is actually repealed, so that the data
needed for compliant disclosure is ready if required.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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