SEC Proposes Pay Ratio Disclosure Rules
On Wednesday, September 18, 2013, the Securities and Exchange Commission (the “SEC”) voted 3-2 to propose a new rule that would require public companies to disclose the ratio of the compensation of its chief executive officer (“CEO”) to the median compensation of its employees. The rule is proposed pursuant to Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) which directs the SEC to amend existing rules to require companies to disclose the median of the annual total compensation of all employees of the company and the ratio of that median to the annual total compensation of its CEO.
The proposed rule does not specify any required calculation methodologies for identifying the median employee in terms of total compensation for all employees. Instead, it would allow companies to select a methodology that is appropriate to the size and structure of their own businesses and the way they compensate employees. For example, a company would be permitted to identify the median employee based on total compensation using either its full employee population or a statistical sample of that population. Companies would be required to disclose the methodology used to identify the median, and any material assumptions, adjustments or estimates used to identify the median or to determine total compensation. If a company identifies a median employee based on a consistently applied compensation measure, the proposed rule would require disclosure of the measure that it used. Also, companies would be required to clearly identify any amounts that are estimated.
Under the proposed Rule, median employee total compensation would be calculated using the definition of “total compensation” in existing executive compensation rules, such as Item 402(c)(2)(x) of Regulation S-K.
As provided by the Jumpstart Our Business Startups Act, the proposed rule would not apply to emerging growth companies. In addition, the proposed rule would not apply to smaller reporting companies or foreign private issuers. The proposal would also provide a transition period for newly public companies. For these companies, initial compliance would be required with respect to compensation for the first fiscal year commencing on or after the date the company becomes subject to the reporting requirements.
Perkins Coie LLP published an update providing greater detail on the newly proposed SEC rules.
Read the SEC press release
SEC Approves Final Municipal Advisor Registration Rules
On Wednesday, September 18, 2013, the SEC voted unanimously to adopt rules establishing a permanent registration regime for municipal advisors as required by Section 975 of the Dodd-Frank Act. State and local governments that issue municipal bonds frequently rely on advisors to help them decide how and when to issue the securities and how to invest proceeds from the sales. These advisors receive fees for the services they provide. After the Dodd-Frank Act became law, the SEC established a temporary registration regime. More than 1,100 municipal advisors have since registered with the SEC. The new rule approved by the SEC requires a municipal advisor to permanently register with the SEC if it provides advice on the issuance of municipal securities or about certain “investment strategies” or municipal derivatives.
The final rule exempts employees and appointed officials of municipal entities from registration, and narrows the application of the term “investment strategies” to apply only to the investment of proceeds from the sale of municipal securities rather than to all public funds. Additionally, instead of the proposed approach that would have required individuals associated with registered municipal advisory firms to register separately, the final rule requires these firms to furnish information about these individuals.
Read the SEC press release
Federal Reserve Board Issues Two Interim Rules on Basel III Reforms
On Tuesday, September 24, 2013, the Federal Reserve Board (the “Fed”) issued two interim final rules, effective immediately, that clarify how companies should incorporate the Basel III regulatory capital reforms into their capital and business projections during the next cycle of capital plan submissions and stress tests. The rules implementing the Basel III capital reforms in the United States were finalized in July, and will be phased-in beginning in 2014 or 2015, depending on the size of the banking organization.
The Fed's first interim final rule applies to bank holding companies with $50 billion or more in total consolidated assets. The rule clarifies that in the next capital planning and stress testing cycle, these companies must incorporate the revised capital framework into their capital planning projections and into the stress tests required under the Dodd-Frank Act using the transition paths established in the Basel III final rule. This rule also clarifies that for the upcoming cycle, capital adequacy at large banking organizations would continue to be assessed against a minimum 5 percent tier 1 common ratio calculated in the same manner as under previous stress tests and capital plan submissions, ensuring consistency with those previous exercises.
The second interim final rule provides a one-year transition period for most banking organizations with between $10 billion and $50 billion in total consolidated assets. These companies this fall are conducting their first company-run stress test under the Fed's rules implementing the Dodd-Frank Act. These companies will be required to calculate their stress test projections using the Fed's current regulatory capital rules during the upcoming stress test to allow time to adjust their internal systems to the revised capital framework.
The interim final rules also clarify that companies will not be required to use the advanced approaches in the Basel III capital rules to calculate their projected risk-weighted assets in a given capital planning and stress testing cycle unless the companies have been notified by September 30 of that year, prior to the start of that capital planning and stress testing cycle.
Read the Fed press release