SEC Approves CEO Pay Ratio Disclosure and Municipal Advisor Registration


At the September 18, 2013, open meeting of the Securities and Exchange Commission (SEC), the commissioners voted three to two to propose rules that will require listed companies to disclose pay ratios comparing a company's chief executive officer (CEO) pay to that of its median employee. Daniel M. Gallagher and Michael Piwowar voted against the proposal. In scathing opening remarks, Commissioner Piwowar criticized the rule, opining that the rule wrongly favored special interests ahead of investors and was a tactic designed to "shame" CEOs. According to the SEC's release, the commission has received approximately 22,860 comment letters and a petition with approximately 84,700 signatories.

The proposed rule requires companies to disclose the ratio of median annual employee pay to total annual compensation of the company's CEO, as mandated by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The disclosure must express CEO compensation as a multiple of median employee pay. However, the proposed rule provides companies flexibility in determining median employee compensation. Companies may use reasonable estimates of median employee pay, including statistical sampling of employee pay data. Under the proposed rule, registrants would be required to briefly disclose and consistently apply the methodology used to calculate median employee pay. "Employee" includes any full-time, part-time, seasonal or temporary worker employed by the registrant or any of its subsidiaries. The proposed rule will be open for comment for 60 days from its publication in the federal register.

In the same meeting, the SEC voted to impose registration rules for financial advisors providing investment advice to municipalities. According to a summary of the proposed rule, the rule would only apply to advisors giving advice to municipalities regarding investment of proceeds from the sale or issuance of securities. Commissioner Kara M. Stein spoke in support of the rule, which passed unanimously.

Proposed Rule Release:

SEC Open Meeting Statements:

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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