Pay Ratio Disclosures the Latest Dodd-Frank Provision to Come Under Reconsideration at the SEC


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For the second time in a week, acting SEC Chair Michael Piwowar has asked the SEC staff to reconsider implementation of a controversial provision of the Dodd-Frank Act.

Last week it was the conflict minerals rule.  This week it’s the pay ratio rule’s turn.

The latter, adopted by a divided SEC in August 2015, requires companies to disclose the ratio of their chief executive's annual pay to the median annual pay of their employees.

Piwowar was one of two Republican SEC members to vote against the rule.  In Piwowar’s dissent on the rule’s implementation, he criticized the pay ratio rule as being violative of the Administrative Procedures Act, a major source of challenge for SEC regulations.

In his Feb. 6 statement, Piwowar reopened the rule for comment, to be submitted within the next 45 days, and has asked SEC staff to “reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.”

With the implementation to the rule having been previously delayed by the commission until companies’ first fiscal year on or after Jan. 1, 2017, most companies won’t have to disclose until their 2018 proxy statements.

According to Piwowar, however, “Issuers are now actively engaged in the implementation and testing of systems and controls designed to collect and process the information necessary for compliance. However, it is my understanding that some issuers have begun to encounter unanticipated compliance difficulties that may hinder them in meeting the reporting deadline.”

Time will tell what happens to two of the most controversial provisions in Dodd-Frank. 

A third, the resource extraction disclosure rule, was revoked last week by both the House and Senate under the Congressional Review Act (CRA).  The final step—the president’s signature—still awaits.  While the CRA action negates the SEC rule, it doesn’t strip away the Dodd-Frank Act provision mandating the regulation. This means the SEC is still technically required to craft the measure, even though a Republican-led commission is unlikely to act and Republican lawmakers are seeking to repeal that part of Dodd-Frank.