Pay Ratio Regulations

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On September 21, 2017, the Securities and Exchange Commission (the “SEC”) adopted interpretive guidance regarding Item 402(u) of Regulation S-K, which governs pay ratio disclosure. The interpretive guidance is intended to provide assistance to companies choosing to use statistical sampling in determining their median employee. In the interpretive guidance, the…

As part of the Dodd-Frank Wall Street Reform and Consumer Protection Act enacted in July 2010, Congress directed the Securities and Exchange Commission (SEC) to adopt pay ratio disclosure requiring public companies to disclose the ratio between the annual total compensation of the median employee and the company’s principal executive officer (PEO), generally the company’s chief executive officer (CEO). The Pay Ratio rules required the SEC to amend Item 402 of Regulations S-K, related to company compensation disclosures. Item 402(u) requires companies to disclose:

  1. the median of the annual total compensation of all employees of the company (excluding the company’s PEO);
  2. the annual total compensation of the company’s PEO; and
  3. the ratio of the two amounts.

General:  The SEC recently released final pay ratio rules, which can be found here. As a new Item 402(u) of Regulation S-K, these rules codify the Dodd-Frank requirement for companies to disclose:

  • The median annual total compensation of all employees, excluding the Principal Executive Officer (“PEO”),
  • The annual total compensation of the PEO, and
  • The ratio of (i) and (ii).

The rules provide that this pay ratio must be expressed in a way that uses the median compensation as a base factor (i.e. 10 to 1, 10:1 or “the PEO compensation is ten times the median compensation”).