Dive Brief:
- Companies will have to provide investors with a ratio showing how the median pay of their workforce squares with their chief executive officers' compensation, according to new rules adopted by the Securities and Exchange Commission.
- Under the SEC's final rules, companies will get some flexibility in how they find the median. For instance, they can exclude 5% of their overseas workers when arriving at the number and use statistical sampling, Reuters reports.
- In addition, only larger and mid-sized companies will need to comply, while smaller ones are exempt.
Dive Insight:
Republicans and trade groups such as the U.S. Chamber of Commerce have fought back against the measure at every turn, saying it will be too expensive, could mislead investors and is not material to a company's financial statements, according to Reuters.
Steve Seelig, senior regulatory advisor, executive compensation at Towers Watson, says the pay ratio disclosure for the first time will prompt employers to provide greater transparency in how and why workers are paid what they are.
“Companies need to focus now on developing an effective communication strategy both for internal and external audiences,” Seelig says. “There are many stakeholders with different expectations who will be interested.”
He adds that final regulations have further eased the compliance burden by permitting a calculation every three years. Nonetheless, he says, there is a lot of work to do preparing for the first disclosure, and companies should get started now.
