Center Files Comments on Pay Ratio Data Urging Flexible Approach to Exclusions, as Senate Repeal Bill Is Introduced

July 10, 2015

This week, the Center On Executive Compensation filed comments with the SEC urging it to adopt a principles-based pay ratio rule allowing companies to exclude certain employees in calculating the ratio based on recent SEC data showing that excluding 40 percent of an employer's employees affected the ratio by less than 11 percent.  The Center's comments were based on two memoranda released in June by the SEC's Division of Economic Risk and Analysis estimating the impact on the accuracy of the ratio of excluding certain employee populations under various assumptions.  The SEC requested comments on the data, and the Center explained that although the ratio disclosure itself will not be material to investors, "the impact on registrant compliance costs and burdens has the potential to be significant."  The comments reiterated that, according to a Center survey, excluding non-U.S. employees and part-time employees from the ratio calculation would decrease costs by nearly 70 percent, and urged DERA also to look at the impact of excluding employees on the costs of compliance.  Meanwhile, this week, Sen. Mike Rounds (R-SD), a Senate Banking Committee member, introduced legislation (S. 1722) to repeal the pay ratio provision altogether, identical to House legislation (H.R. 414) introduced by Rep. Bill Huizenga (R-MI).  The Center sent a letter strongly supporting the bill and will continue to advocate for pay ratio repeal.  The introduction is timely, as it has been reported that the SEC will vote on final pay ratio rules on August 5.