Final Pay Ratio Rule to Get Green Light from SEC August 5

July 31, 2015

Capping off a tumultuous five year rulemaking process, the SEC announced on Wednesday that a final rule implementing the controversial Dodd-Frank pay ratio disclosure will be approved on Wednesday, August 5, nearly two years after the issuance of the proposed rule.  The highly contentious Dodd-Frank mandate will require companies to calculate the median compensation of their global employee population, both full and part-time, and compare that figure to the compensation of the company's CEO in the form of a ratio.  The pay ratio disclosure has been subject to constant criticism as being politically charged, designed only to shame companies while imposing substantial compliance costs and burdens.  The Association's Center On Executive Compensation has met with SEC Commissioners and staff extensively and submitted five comment letters urging the Commission to reduce the steep compliance burdens and costs facing companies in light of the negligible benefits provided by the pay ratio.  The final rule will address several key decisions regarding pay ratio compliance, including whether companies will have any latitude to exclude portions of their employee populations from the pay ratio calculation and whether the pay ratio will require CEO/CFO certification.  This week, The Wall Street Journal cited sources alleging that the final rule would allow just five percent of foreign employees to be excluded and quoting Center President Tim Bartl reiterating our position that "the most effective way to remove the most burdens" and costs is to exclude all foreign employees.  For the SEC and agency Chair Mary Jo White, the August 5th pay ratio vote should mark the end of weeks during which she endured vehement personal attacks by special interests seeking to accelerate a final rule.  The vote also may set the stage for the departure of senior SEC Commissioners Dan Gallagher and Luis Aguilar, the latter of whom has stated his desire to leave the SEC upon the completion of the pay ratio which has led to a messy confirmation process among Democrats for his replacement.