SEC Release on Reconsideration of the Pay Ratio Rule

Posted by Aon Hewitt on Feb 8, 2017 9:00:00 AM

On February 6, the SEC released a request for public comment on Reconsideration of the Pay Ratio Rule Implementation required by Section 953(b) of the Dodd-Frank Act. As it stands (unless the rule is delayed or repealed) most companies will be required to comply with the rule in their 2018 proxy statements. The Commission is seeking comment from interested parties within the next 45 days, and acting Chairman Mike Piwowar has instructed the SEC staff to review comments and make a recommendation to the Commission on whether and how to implement the rule. 

In the earlier stages of the implementation process, the Commission has been particularly interested in comments demonstrating unanticipated expense and/or invasions of privacy associated with complying with the rule. In the proposing and adopting releases, the staff appeared to struggle with identifying the specific objectives that the rule is intended to achieve, ultimately concluding that the Pay Ratio is a company specific metric, rather than one that contributes to company-by-company comparisons (as is typical of SEC disclosure rules). Moreover, despite some improvements in the final rule (e.g., recalculation of the median employee triennially, exclusion of up to 5% foreign-based employees) the final rule remains very burdensome for issuers, particularly those with large overseas operations and/or disparate employee populations. Now acting-Chairman Piwowar emphasized these points in his dissenting statement.  

Aon Hewitt Comments

With the first disclosures for most companies set to be made in less than a year’s time, this release by the Commission represents likely the last opportunity to seek adjustments, delay or repeal of the Pay Ratio rule prior to the first disclosures.  In addition, in prior rounds of comments, the SEC received numerous comment letters from proponents of the rule, and we would expect the same in response to this request for comment.  Therefore, we recommend that those who will be impacted by the rule submit comments to the SEC, including through industry trade groups that have been very active in this space, in advance of the 45-day deadline, if possible.       

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Topics: Corporate Governance, Pay Ratio