For several years there has been lobbying for regulation for the disclosure of CEO to “average” worker pay across the Anglo-speaking and Euro zone countries. Despite a recent report by Will Hutton, the UK has so far resisted the move. In addition, an attempt by the mainly conservative German government to legislate for this disclosure was defeated by an opposition Greens (no less!) coalition. The US, however, has charged ahead.
On the 18 September 2013, the SEC proposed pay ratio rules. The proposed rule does not specify any required calculation methodologies for identifying the median employee in terms of total compensation for all employees – so companies would have flexibility (e.g. can use statistical sampling) – and companies would then disclose their methodology. The proposed regulation is fairly open-ended. Companies can use reasonable estimates to come up with the number for the “median employee.” There is a lot of wriggle room for companies to determine the sample and the inclusions or exclusions from that sample, thereby producing very different results. There is a 60-day comment period.
There will be a transition period once final rules are adopted, allowing companies to “omit” the first year. So if the rules become effective in 2014 (which is the most realistic timeframe), then US companies are first required to comply in the 2016 proxy season with 2015 fiscal year information.
Despite all the wriggle room, in typical US style, the draft regulation is 162 pages for what essentially will be the disclosure of one number. Specialist US compensation lawyers can barely contain their glee.
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