On August 5, 2015, the SEC adopted new rules implementing the pay ratio disclosure requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). Section 953(b) of the Dodd-Frank Act required the SEC to adopt rules requiring reporting companies to disclose the ratio of the annual compensation of the company’s median employee to the annual compensation of its principal executive officer. These rules will become effective generally for companies in their Form 10-K for the 2017 fiscal year or in their proxy statement for the 2018 annual meeting. Below are the questions that are answered in the blog post related to the pay ratio rule.
- What are the new rules on pay ratio generally?
- What companies are required to provide the new pay ratio?
- When and where is the new disclosure required?
- How do you determine the median employee?
- Once the median employee is identified, how do you calculate that employee’s annual total compensation?
- How often must the company identify the median employee?
- Who is required to be included in the employee population used to determine the median employee?
- What are the two exemptions for non-U.S. employees?
- What if the company completed an acquisition during the year which included adding new employees?
- May the company make any cost-of-living adjustments in the determination of the median employee or in the calculation of the median employee’s annual total compensation?
- Must companies use their entire employee population to determine the median employee?
- What information other than the pay ratio between the median employee and the PEO must the company disclose and may the company disclose additional information regarding the calculation of the pay ratio?
Bass, Berry & Sims’ Securities Law Exchange blog features commentary and practical insight on SEC updates for publicly traded companies.