Companies Should Continue to Prepare for Pay Ratio Disclosure

Wilson Sonsini Goodrich & Rosati
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The pay ratio disclosure rules adopted by the U.S. Securities and Exchange Commission (SEC) in August 2015 require proxy disclosure in 2018 for most registrants. These rules require the disclosure of the ratio of the median of the annual total compensation of all of a registrant's employees to the annual total compensation of its chief executive officer. For a summary of the key provisions of these rules, please see our previous WSGR Alert. Following the publication of that alert, the SEC issued several interpretations to clarify the application of the new rules.

Companies should continue to prepare for the effectiveness of these rules on the schedule adopted by the SEC. The Financial CHOICE Act of 2017 would repeal the pay ratio rules and was passed by the House of Representatives in June 2017. However, it is unclear when the Senate will consider the bill and whether the Senate would agree to repeal the rules. It also seems unlikely that the SEC will delay effectiveness.

With proxy season over for many companies, now is an ideal time to begin (or to complete) the work necessary to perform the pay ratio analysis. Depending on the circumstances, for example, the analysis of the composition of the workforce (e.g., domestic vs. international employees, significant number of consultants, etc.) and the creation of a timeline to complete the analysis may be lengthy. We recommend that companies strive to begin this analysis at least several months prior to the target date for their initial draft of next year's proxy statement.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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