Compensation & Benefits Library™ gives you accurate answers and practical guidance to help you design, analyze, compare, administer, and communicate compensation and benefits programs...
By Che Odom
Nov. 20 — When it comes to pay ratio disclosures under the Securities and Exchange Commission's new rule, the search for the median employee, and thinking about how to break the news of how much that person is paid, should begin now, attorneys said Nov. 20.
“This is really the people's pay disclosure,” Steve Seelig, executive compensation counsel at Towers Watson & Co., said. “This is the first time that folks out there are really getting a flavor of how CEO pay relates to the common worker, and I'm sure many will look to see if they are paid fairly compared to the CEO.”
Seelig and other executive compensation attorneys spoke at the American Bar Association Business Law Section's fall meeting in Washington. He and the other panelists agreed that in addition to the complex task of developing a method of finding a median and determining which day to make calculations, management and directors must consider how to explain the numbers to shareholders, the public and—perhaps the most interested audience—their employees.
The pay ratio disclosure rule, which was adopted Aug. 5 by the SEC, allows some flexibility in making calculations, but that means companies must be careful when coming up with a methodology that could be challenged by various stakeholders, Seelig said.
Companies will be required to disclose, in a wide range of filings, the median of the annual total compensation of all employees of the company, except the chief executive officer; the annual total compensation of the CEO; and the ratio of the two.
When determining the median employee, include all employees of the company and its consolidated subsidiaries, including non-U.S., part-time, temporary and seasonal workers employed on any date within the last three months of the last fiscal year, John Fieldsend, special counsel in the SEC's Division of Corporation Finance, said at the panel.
When it comes to identifying the median employee, companies may search from the entire employee population, use a statistical sample or apply another reasonable method that must be explained in their SEC filings, Seelig said.
In addition, companies may use annual total compensation or any other consistently applied compensation measure, he said. To ensure consistency, companies may need to make certain adjustments to the compensation of employees paid in foreign jurisdictions that may not use common definitions for compensation terms, he added.
To contact the reporter on this story: Che Odom at firstname.lastname@example.org
To contact the editor responsible for this story: Yin Wilczek at email@example.com
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to firstname.lastname@example.org.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to email@example.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)