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Three Steps to Compliance for Issuers on the SEC© Pay Ratio Disclosure

Publisher: Forbes
Author: Robin Ferracone

As you know by now, last week, the Securities and Exchange Commission (SEC), by a 3-to-2 vote, adopted a rule requiring companies to disclose the pay ratio between their chief executive officer and their median paid employee, as mandated by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

The SEC© Pay Ratio Disclosure rule is intended to provide investors with yet another piece of information to consider when exercising their Say on Pay votes. However, many argued that it would place undue burden on companies having to comply with this requirement.

To quell criticism from an early proposal, the SEC© added some flexibility to the rule including:

  • An ability to exclude up to 5% of non-U.S. employees when determining the median employee;
  • An ability to exclude non-U.S. employees when foreign data privacy laws would prohibit companies from obtaining the information necessary to calculate the pay ratio;
  • An ability to choose any date during the last three months of a company’s fiscal year to determine the median employee; and
  • An ability to use the same median employee for three years, unless there has been a change in the employee population or compensation arrangements that would significantly impact the pay ratio.

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