Securities Law Daily provides daily coverage of developments in the regulation of federal, state, and international securities and futures trading, with objective coverage of the...
Oct. 19 — The corporate community got a little guidance from the Securities and Exchange Commission staff on how to make disclosures required by the agency's controversial pay-ratio rule.
The rule, adopted in August 2015 by a divided Securities and Exchange Commission, requires public companies to disclose in their annual reports and other filings the ratio of their chief executive's pay to the median pay of their other employees (151 SLD, 8/6/15).
The rule gives companies leeway in calculating median pay. Companies will be expected to include the pay ratio disclosure in their annual report or proxy statement for fiscal 2017.
The U.S. Chamber of Commerce has said it won't file a legal challenge to the rule, even though business groups are opposed to the regulation. They say compliance will be costly and the ratio won't be valuable to many investors (204 SLD 204, 10/22/15). House Republicans also are seeking to repeal the Dodd-Frank provision authorizing the rule (13 SLD, 1/21/16).
The agency's Division of Corporation Finance, which periodically offers its interpretation of the agency's rules, said a company doesn't have to calculate annual total compensation to determine median pay as set out in other SEC rules. Instead, it can use any measure that reasonably reflects its employees' annual compensation.
The appropriateness of any measure depends on the company's particular circumstances, the staff said. For example, total cash compensation could be used as a “consistently applied compensation measure”—CACM—unless the company also widely distributed annual equity awards among its employees.
However, the staff said, a company can't exclusively use hourly or annual rates of pay as its CACM. Although a pay rate may be used to determine an employee’s overall compensation, using the pay rate alone generally isn't an appropriate CACM to identify the median pay.
The division's guidance also addressed what time period may be used to identify the median employee, furloughed employees and independent contractors.
To contact the reporter on this story: Phyllis Diamond in Washington at email@example.com
To contact the editor responsible for this story: Susan Jenkins at firstname.lastname@example.org
To see the division's Compliance and Disclosure Interpretations, go to https://www.sec.gov/divisions/corpfin/cfguidance.shtml.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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 email@example.com.
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 firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)