SEC Proposes Rules Requiring Disclosure of Pay Ratio Comparing CEO and Median Employee Compensation

Firm Thought Leadership

The Dodd-Frank Wall Street Reform and Consumer Protection Act, as enacted in 2010, directs the Securities and Exchange Commission to adopt new rules requiring the disclosure of an executive pay ratio for public companies. Specifically, Section 953(b) of the Dodd-Frank Act requires the SEC to amend Item 402 of Regulation S-K to require an issuer to disclose the median annual total compensation of all employees of the issuer, other than the chief executive officer, the annual total compensation of the chief executive officer and the ratio of these two values. The statute provides that Item 402(c)(2)(x) of Regulation S-K is to be used for the purpose of calculating total compensation.

On September 18, 2013, the SEC proposed adding paragraph (u) to Item 402 of Regulation S-K (the “Proposed Rules”) to implement this requirement. The Proposed Rules were adopted by a three to two vote over strong dissents objecting to the cost of implementing the Proposed Rules and the absence of any definable benefits. The SEC is seeking public comments on the Proposed Rules for a period of 60 days from their publication in the Federal Register. Following the review of comments by the SEC, the final rules are to be issued. As of the date of this client update, publication of the Proposed Rules in the Federal Register is pending.


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