SEC Calls Time-Out on Pay Ratio Disclosure


In a statement issued Feb. 6, Acting Securities Exchange Commission Chairman Michael S. Piwowar asked for public comments about unanticipated challenges to implement the pay ratio disclosure rule.  The statement also directed SEC staff to reconsider the rule based on an expedited review of the comments received.

Piwowar’s statement is significant because it signals the SEC’s intent to delay, revise, repeal or issue additional guidance or other relief despite the rule’s fast-approaching compliance date.  At this juncture, it’s uncertain what’s next for the pay ratio disclosure rule but, there appears to be a consensus among executive compensation experts that the compliance date likely will be delayed.

Pay Ratio Disclosure Rule

The SEC adopted the pay ratio disclosure rule to implement Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  The rule requires public companies to disclose the ratio of pay between the median employee and the company’s principal executive officer.  Companies must report their pay ratio in their 2018 proxy statements using 2017 compensation data.  Interestingly, the timing of Piwowar’s Feb. 6 statement coincides with the executive order signed by President Trump Feb. 3 mandating a Department of the Treasury review of financial regulations, including Dodd-Frank.

Piwowar’s statement indicates that the comment request and SEC review are based on his “understanding that some issuers have begun to encounter unanticipated compliance difficulties that may hinder them in meeting the reporting deadline.”

Next Steps

Comments regarding pay ratio disclosure rule implementation are due by March 23.  Piwowar specifically requested comments on “any unexpected challenges that issuers have experienced as they prepare for compliance.”  Comments can be submitted via an on-line form.

The advice being provided by executive compensation experts reflects the uncertain future of the pay ratio disclosure rule.  Steve Seelig of Willis Towers Watson told Bloomberg BNA Feb. 7, “We are recommending that companies still focus on identifying how they might access global pay data, whether they might use statistical sampling and what their time frame would need to be for performing their calculation, in case this delay does not happen.”  Seelig added, “having a game plan in mind is still valuable even if that game plan will not need to be implemented during 2017” and that “organizations with these details at hand will be better positioned to provide meaningful comments to the SEC as to the challenges they are facing and the relief that will be needed.”

Michael Melbinger of Winston & Strawn LLP told Bloomberg BNA Feb. 7, “I cannot guarantee that the pay ratio rule will not become effective in 2018, but for the time being, it seems wise to adopt a wait and see approach.”  

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