SEC Delays Deadline for Final Pay Ratio Rules to 2016, But Actual Timing Still Unknown

Executive Pay Legislation and Regulation, Executive Pay Plan Design

The SEC semi-annual regulatory agenda released last week states that action on most related executive compensation rules, including final pay ratio rules, will be completed by April 2016, making it increasingly unlikely that most companies will need to disclose pay ratio information in their 2016 proxies.  The regulatory agenda is required of government agencies and outlines the SEC's major rulemaking goals and expected timelines for that year, although the dates listed in the agenda are not firm timelines and final action could occur sooner—or later—than indicated.  The rules detailed in the most recent regulatory agenda and their deadlines include:

June 2015:  Re-proposal of incentive compensation rules for financial institutions under section 956 of Dodd Frank.

April 2016:

• Final Pay Ratio Rule
• Final Pay for Performance Rule
• Final Hedging Disclosure Rule
• Proposed Rule on Clawbacks
• Proposed Rule on Investor Disclosure of Say on Pay Votes

With this announcement, it appears highly unlikely that the SEC will finalize pay ratio rules by mid-year, which is about the latest it could approve rules that would take effect at some point in 2016.  This also makes it unlikely that disclosures will be required in advance of the Presidential election.  In a similar vein, it remains to be seen how the SEC's agenda will be affected by the announced departures of two SEC Commissioners.  Democrat Commissioner Luis Aguilar, whose term officially ends in June 2015, has indicated he will stay on until the executive compensation rules are completed.  (By statute, SEC commissioners may remain in office for up to 18 months after their terms expire.)  Republican Commissioner Dan Gallagher is reportedly planning to step down before his term ends in June 2016 upon the confirmation of a successor.  This makes it likely that a package nomination of two commissioners will ultimately be submitted to the Senate for confirmation.