On September 18, 2013, the SEC issued its long-awaited, and much debated, proposed rules regarding CEO pay ratio disclosures, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July 2010.
The proposed rules would require U.S. public companies to disclose the following in their annual meeting proxy statements: (1) the median of the annual total compensation of all employees of the company, except the company’s CEO (or equivalent); (2) the annual total compensation of the company’s CEO (or equivalent); and (3) the ratio of these two amounts. The term “total compensation” is defined under SEC rules to include base salary, bonuses, equity grants, non-equity incentive plan compensation, change in pension value, nonqualified deferred compensation earnings and other compensation (including perquisites). The pay ratio disclosure would be included in context with other executive compensation disclosures, such as the compensation tables and the Compensation Discussion and Analysis section.
While the disclosure required seems relatively straightforward, the process of calculating the median of the annual total compensation of all employees of the company could prove to be a daunting one. The proposed rules would require companies to include all employees (whether full-time, part-time, temporary or seasonal) at the company or subsidiary level, including non-U.S. employees. The employees to consider are those employed on the last day of the company’s fiscal year, and their compensation may be annualized. The proposed rules do not require a specific method for identifying the median employee, thus allowing companies some flexibility to use statistical sampling, if an all-employee survey method is not practical. The proposed rules would allow the use of reasonable estimates for calculating the median employee’s total compensation (but not the CEO’s).
The proposed rules contain exemptions for foreign private issuers, smaller reporting companies and emerging growth companies, meaning none of these companies would be required to provide this disclosure. The exact timing of final rules is not certain; however, it is generally believed that final rules would not be issued in time to impact the 2014 proxy season.
- Partner
Mark Reuter advocates for business clients in transactions, proceedings and conflicts regulated by federal and state securities laws and stock exchange rules. A partner in the firm’s Business Representation & Transaction ...
- Partner
Jim Kennedy practices in the Business Representation & Transactions Group. The focus of his practice is corporate, securities, and financing law, where he has extensive experience in mergers, acquisitions and ...
Topics/Tags
Select- Securities Law
- SEC
- Securities Regulation
- Cybersecurity and Privacy Law
- Coronavirus
- Mergers & Acquisitions
- Economic Sanctions
- Ohio LLC Act
- Nasdaq
- Corporate Law
- Cybersecurity Regulation
- Tax Planning
- Corporate Tax
- Dodd-Frank
- Paycheck Protection Program
- IRS
- JOBS Act
- FAST Act
- Proxy Access Rules
- Securities Litigation
- Corporate Governance
- Consumer Protection Act
- SEC Enforcement
- Crowdfunding
- Cryptocurrency
- Hedging
- Taxation
- Private Offerings
- Real Estate Law
- Conflict Minerals
- Emerging Growth Companies
- Investors
- Pay Ratio Disclosure
- Intellectual Property
- Technology
- Whistleblower
- Opportunity Zone
- LIBOR
- Accredited Investors
- Sales Tax
- United States Supreme Court
- Online Trading Platforms
- Executive Compensation
- Health Care Act
- IPO
- Registration Statement
- Annual Reports
- Ohio Foreclosure Reform
- Family-Controlled Entities
- Gift and Estate Transfers
- Director Compensation
- Wall Street Reform
- Board of Directors
- Director Independence
- Clawback Rules
- Cyber Insurance
- Data Breach
- Regulation A
- Regulation D
- Total Shareholder Return
- Lenders
- Receivership Statute
- Compensation Committee Certification
- CDEs
- CDFI Fund
- Community Development Entities
- Community Development Financial Institutions Fund
- Government Shutdown
- New Markets Tax Credit
- NMTC
- NMTC Financing
- Regulation Fair Disclosure
- Social Media
- Marketing
- Benefits
- Healthcare Reform
- Litigation
- Public Company Transition Rules
- Employment Incentives
- HIRE Act
- Social Security Tax
- Tax Credit
Recent Posts
- SEC Provides Sample Guidance on Disclosure of Russia-Ukraine Invasion
- Proposed SEC Climate-Related Disclosure Requirements
- Proposed SEC Cybersecurity Rules
- International Unrest and its Impact on M&A
- The United States Ramps Up Severe Economic Sanctions on Russia and Export Controls
- Revised Ohio LLC Statute
- Beware of ‘Spring-Loaded’ Awards: SEC Issues Updated Accounting Guidance
- SEC Opens Floodgates for ESG Proposals
- NYSE Proposes an Amendment to the Shareholder Voting Requirement
- SEC Charges Pearson plc for Misleading Investors About Cyber Breach and Inadequate Disclosure Controls