In these survey results (courtesy of thecorporatecounsel.net), audit firm Deloitte provides data as of April 10 regarding pay-ratio disclosures for 294 companies in the S&P 500. Interestingly, so far at least, not many of the accommodations that the SEC deliberately included in the rule to provide “flexibility” have found favor with companies. For example, the survey showed that only 8% of companies used statistical sampling, a methodology initially suggested in comments by the AFL-CIO and adopted by the SEC in an effort to make the pay-ratio rule more palatable to companies.   However, for this first year of reporting, many companies have opted to take a minimalist approach; whether that changes over time as companies become accustomed to the rule and more adventurous in its implementation remains to be seen.

According to the new data:

• The most recent median pay ratio is 153:1, and the “median of median” employee’s total comp is just under $71,000. At the 25^th percentile, the ratio was 103:1, while at the 75^th percentile, the ratio was 276:1.
• Pay ratios varied significantly by industry sector. The highest pay ratio continues to be in the consumer discretionary sector, which had a median ratio of 396:1, followed by the consumer staples sector, which had a median ratio of 276:1. The lowest pay ratios were in the utilities sector (96:1) and energy sector (110:1).  These ratios appear to vary based principally on the level of employee comp, not CEO comp.  For example, the lowest median employee comp was also in the consumer discretionary sector at $32,343, and the next lowest was in consumer staples at $47,557, while the highest median employee comp was in the energy  sector ($123,500), followed closely by the utilities sector ($122,365).
• The data showed a strong correlation between amount of revenue and the pay ratio, but here, interestingly, in contrast to the industry sector data, the main driver was CEO pay, not employee pay. For example, for companies with revenue ranging from $0 to $3 billion, the median pay ratio was 94.5:1 (the lowest ratio) and median employee comp was $77,577; for companies with revenue over $508 billion (the highest revenue category), the ratio was also the highest at 276:1, but the median employee comp was about the same as at the lowest revenue firms at $77,799.

In terms of the methodologies used and information disclosed, the survey showed the following:

• The vast majority of companies (79%) provided no description of the median employee, leaving only 21% that did disclose some information, including US/non-US location (42 companies), full-time/part-time (30 companies),  hourly/salaried (28 companies) and title or job description (21 companies).
• With regard to the use of exemptions allowed under the rule, many companies (43%) reported that they took advantage of the de minimis exemption, which allows the company, subject to certain limitations, to exclude from the calculation of the median employee non-US employees that account for 5% or less of its total employees. However, no company reported having availed itself of the complex data privacy exemption, which permits a company to exclude non-US employees from the calculation if the company is unable, notwithstanding its reasonable efforts (including seeking relief under the data privacy laws), to obtain or process the information necessary for compliance with the pay-ratio requirements because of the data privacy laws of the foreign jurisdiction where the employees are employed. Only 14% reported use of the exclusion for employees acquired through an acquisition in that year.
• With regard to identification of the median employee, about half of companies in the survey selected a measurement date other than the end of the year. The most frequently selected “consistently applied compensation measure” used to identify the median employee was total cash compensation, which was used by 32% of companies, but not far behind at 23% was base pay and wages, W-2 wages at 20%, and total direct compensation at 18%.  Only 5% of companies reported that they selected an alternative median employee to calculate the pay ratio because the comp of the employee initially selected was anomalous in some way. The survey also reported that slightly over half the companies reported annualizing the pay of permanent employees who signed on during the year.

• In terms of methodology used, surprisingly, only 8% companies in the survey used statistical sampling. Deloitte suggests that companies may have been reluctant to use this methodology because of concerns over accuracy and other potential criticisms.

In Deloitte’s survey, only one company used a cost-of-living adjustment, another accommodation included by the SEC in effort to increase flexibility. The rule allows companies to adjust employee total comp to reflect the cost of living in the CEO’s jurisdiction.

• In calculating the CEO’s comp, companies are required to use the total comp number from the Summary Compensation Table. However, companies are allowed to add in certain health benefits, otherwise generally excluded from the calculation of CEO comp, to totals for both the CEO and the median employee (which, in most cases, would have the effect of reducing the ratio). This year, Deloitte indicates, only 16% of companies reported adding health benefits.
• Where a company has appointed a new CEO during the year, the SEC provides two approaches to the disclosure. Deloitte indicates that two companies with new CEOs elected, as permitted, to combine the compensation of both CEOs, while 20 companies annualized the comp of one of the CEOs.
• The rule also allows companies to disclose alternative pay ratios, so long as they are not misleading or presented with more prominence than the required ratio. Deloitte reports that only 13% of companies disclosed alternative ratios, which were calculated, for example, to exclude special one-time payments to the CEO or to exclude foreign employees. For three companies, the alternative ratios were actually higher than the required ratio—setting the table perhaps for consistent disclosure in future years?
• The vast majority (81%) of companies placed the pay-ratio disclosure after the table for change-in-control/severance information.

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