Issuers Should Adopt Pay Policies, Not Wait for SEC to Act, Official Says

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By Yin Wilczek

Oct. 1 — As the Securities and Exchange Commission continues to mull executive compensation requirements mandated by Dodd-Frank, companies should go ahead and implement such policies if they think it is the right thing to do, a senior official said Sept. 29.

Issuers “shouldn't let the pendency of a rule proposal from us dissuade them from doing what they think is the right thing,” said Keith Higgins, director of the SEC Division of Corporation Finance. “If they try to model” their policies after what they think the SEC ultimately may require, “that's fine, but I don't think that should drive the discussion.”

However, if issuers “try to imagine what we might do, they'll probably be pretty darn close to where things come out,” he added.

Higgins spoke at a proxy disclosure conference in Las Vegas organized by and He said he voiced his own opinions, which did not necessarily reflect those of the commission or other staff members.

Dodd-Frank Pay Requirements 

Under Sections 953 to 955 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC must develop rules on clawing back “erroneously awarded” pay. The commission further must require companies to disclose how their executive pay packages relate to corporate performance, and disclose whether they allow employees and directors to hedge their stock holdings.

The commission has not yet issued proposals on the provisions (12 CARE 1124, 9/12/14).

There is a pending SEC proposal—also mandated by Dodd-Frank—that would require public companies to disclose the ratio of the median pay of their employees to that of their chief executive officers (12 CARE 875, 8/1/14). SEC Chairman Mary Jo White recently told the Senate Banking Committee that her “hope and expectation” is that the pay ratio proposal will be finalized this year (12 CARE 1124, 9/12/14).

Higgins told the audience that Corp. Fin. is making progress on the financial reform statute's executive compensation requirements. However, given the commission's busy schedule, “I can't tell you how they will get done or the order in which they will get done.”

Pay for Performance 

Higgins noted that many companies already have policies in place to disclose pay-for-performance. He added that the staff has been watching industry efforts to come up with a “consensus definition” for “realized pay,” which could inform the commission's rule writing to implement Dodd-Frank § 953's requirement that issuers disclose “compensation actually paid.”

There doesn't yet appear to be “a coalescence around one particular best way to do it,” Higgins observed.

Meanwhile, the biggest issue for pay ratios is the SEC's proposed approach of applying the rule to all employees, not just ones in the U.S., Higgins said. Although the Corp. Fin. staff understands that the calculation may be challenging for global companies, other commenters have said it would not properly depict a company's workforce if foreign employees are omitted, he said. “I can't tell you exactly how” the final rule will look, but “hopefully we'll know the final chapter by the end of the year.”

In other discussions, Higgins said Corp. Fin. has heard anecdotally that compensation disclosures have improved since say-on-pay was implemented. From the division's perspective, staff comments on compensation disclosures are “way way down” from what they were back in the last decade, he said.

“There aren't any real compensation issues that we think are momentous that people ought to be paying a great deal of attention to,” Higgins said. “So I think compensation disclosure, at least from a compliance standpoint, is going relatively well.”

To contact the reporter on this story: Yin Wilczek in Washington at

To contact the editor responsible for this story: Susan Jenkins at


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