SEC Guidance Lessens Legwork for Pay Ratio Reporting

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By Andrea Vittorio

The Securities and Exchange Commission has issued guidance meant to make it easier for companies that have to disclose next year the pay gap between top executives and typical workers.

The commission’s Sept. 21 guidance, based on feedback collected earlier this year, offers advice on issues such as how to determine which employees to count toward determining a median, or middle, worker’s pay.

“This has been a huge issue for companies,” Steve Seelig, an executive compensation consultant at Willis Towers Watson, told Bloomberg BNA. He said the SEC has lessened the legwork for companies by letting them use the same definitions of workers as they use for tax or payroll purposes.

The commission opened the ratio reporting requirement, put in place as part of the 2010 Dodd-Frank Act, up for review in February. Business groups, which say the ratios are meant to embarrass CEOs and won’t be useful to investors, wrote in asking for relief.

“I think a lot of companies went through the first half of this year hoping they wouldn’t have to do it,” Dan Marcec, director of content at executive data provider Equilar Inc., said. But Marcec said the SEC has made clear that disclosures are still due next year.

Most companies have estimated a ratio, and half of them have started drafting disclosures around it, according to a recent Mercer survey.

The commission’s staff provided separate guidance that includes examples of how to use reasonable estimates and statistical sampling. “We encourage companies to contact the division staff if additional interpretive questions arise as the compliance date approaches,” Bill Hinman, director of the SEC’s Division of Corporation Finance, said in a statement.

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bna.com

To contact the editor responsible for this story: Yin Wilczek at ywilczek@bna.com

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