SEC to Revisit Pay Ratio Rule

By:
Chris Gaetano
Published Date:
Feb 7, 2017
SECURITIES-AND-EXCHANGE-COMMISSION-facebook

Michael Piwowar, acting SEC Chairman, said that the agency will be revisiting a rule that required companies to disclose the ratio of compensation between the CEO and rank-and-file employees, as he said a number of filers have reported unanticipated compliance difficulties. The rule, approved August 2015 as part of the Dodd-Frank Act, requires companies to disclose the median of the annual total compensation of all its employees save the CEO, the annual total compensation of its CEO, and the ratio of those two amounts. 

"Based on comments received during the rulemaking process, the Commission delayed compliance for companies until their first fiscal year beginning on or after January 1, 2017. Issuers are now actively engaged in the implementation and testing of systems and controls designed to collect and process the information necessary for compliance. However, it is my understanding that some issuers have begun to encounter unanticipated compliance difficulties that may hinder them in meeting the reporting deadline," said Piwowar. 

The rule has been controversial, even on the commission itself, where the vote fell largely along partisan lines. Opponents, such as the Business Roundtable, said that the regulation imposes a significant administrative burden on companies in order to provide information that is largely immaterial to investment decisions. However supporters, such as the California Public Employees' Retirement System, said the ratio can give insight into how effectively a company manages its human capital and will also aid in say-on-pay shareholder votes. 

On the commission itself, Commissioner Piwowar, a Republican, was vigorously opposed to the rule when it was approved. He said that it represents "nothing more than a sad example of surrendering the Commission’s agenda to politically-connected special interests and acquiescing to the bullying tactics of their political allies," namely labor unions, and is far afield of the commission's actual purpose of protecting investors, ensuring fair, orderly, and efficient markets, or facilitating capital formation. 

On the other hand, Commissioner Kara M. Stein, a Democrat, said at the time that "it will allow investors to evaluate how this metric changes from year to year for individual companies. It also will provide valuable information to investors about how a company manages human capital,"and added that this information will be valuable for the ability of investors to evaluate a company's governance as it relates to executive compensation, particularly as they relate to "say on pay" votes. 

Piwowar said that he is seeking public input on any unexpected challenges issuers have experienced as they prepare for compliance with the rule, and whether relief is needed. Comments may be submitted via this link for the next 45 days.

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