Debevoise & Plimpton

SEC proposes controversial CEO-to-worker pay-ratio disclosure rule

The Securities and Exchange Commission (SEC) has approved a proposed rule, implementing the requirements under Section 953(b) of the Dodd-Frank Act, requiring companies to disclose the median of the annual total compensation of all employees and the ratio of that median to the annual total compensation of their chief executive officers (CEOs). While it is easy to debate whether the benefit of such a rule to investors justifies the cost and complexity of assembling the required data, the SEC has offered registrants alternative methods of compliance that may make the process far less burdensome than could have been the case. And perhaps most importantly, as a practical matter, calendar-year registrants will likely not need to comply with the rule until at least 2016.

The proposed pay-ratio disclosure would be required in any annual report, proxy or information statement or registration statement that requires executive compensation disclosure under Item 402 of Regulation S-K. However, the proposed rule would not apply to smaller reporting companies, foreign private issuers and emerging growth companies and would not be required in IPO disclosure.

As mandated by Dodd-Frank, the proposed rule requires disclosure of the median of the annual total compensation of all ‘employees’ (meaning the annual total compensation of the employee at the compensation median)…

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