Bass, Berry & Sims attorney Andrea Orr provided insight in two separate outlets, the Nashville Post and Bloomberg BNA, related to the CEO pay ratio disclosure rule that public companies are subject to for the first time this year. Mandated by the Dodd-Frank Act and Securities and Exchange Commission (SEC), the rule requires public companies to disclose the annual total compensation between a company’s CEO and its median average employee in their proxy statements. Disclosures are beginning to be made public, and according to a Mercer survey, companies are likely to take a less-is-more approach with their reporting.
“We don’t expect companies to go into extensive explanations,” noted Andrea, who is advising companies to take more of a minimalistic approach. “However, more well-known companies with large workforces and atypical pay ratios may want to provide additional context,” Andrea continued in the Bloomberg BNA article.
Companies should consider how to communicate internally with their employees about the disclosed ratios, however there shouldn’t be any shock from leadership about what the ratios might look like. “Nobody should really be surprised about what pay ratios are going to look like, but the information is being seen by employees for the first time,” explained Andrea in Bloomberg BNA. Companies may want to prepare “talking points as to why they believe their pay strategies are fair.”
In the Nashville Post article, Andrea discusses some potential reactions to the newly available information. Andrea speculates that “labor unions and institutional investors will be keen to use them to push for pay or governance changes … Companies will be interested in their peers’ numbers and we could see some changes in a year or two.”
The Bloomberg BNA article, “Less is More for Companies Reporting CEO-to-Worker Pay Gap,” was published on March 2, 2018.
The Nashville Post article, “The Rules – Pay Ratio Disclosures,” was published in the special Leaders issue released in Spring 2018.