Despite talk of repeal or delay, the pay ratio disclosure rule of the US Securities and Exchange Commission (SEC) remains in effect.1 Therefore, most public companies will be required, for the first time, to include pay ratio disclosure in their 2018 proxy statements. As a result, companies should be devoting energy and resources now to finalizing their preparations for this requirement.


Briefly, pay ratio disclosure will require public companies to disclose:

• The median of the annual total compensation of all employees other than the chief executive officer;

• The annual total compensation of the chief executive officer; and

• The ratio of these amounts.

The SEC’s pay ratio rule contains many details regarding how this calculation should be made and disclosed. For more information about this rule, see our Legal Update “Understanding the SEC’s Pay Ratio Disclosure Rule and its Implications,” dated August 20, 2015,2 and our Legal Update “SEC Provides Pay Ratio Disclosure Guidance,” dated October 25, 2016.3

Recent Developments

During the first half of 2017, many people were discussing whether the SEC’s pay ratio disclosure rule would be repealed or its implementation delayed. In early February 2017, then-acting SEC Chairman Michael S. Piwowar issued a statement seeking public input on any unexpected challenges companies were facing as they were preparing to comply with the rule and whether relief was needed. In addition, he directed the SEC staff to reconsider the pay ratio rule based on comments submitted and to determine whether additional guidance or relief may be appropriate. While it is still possible that the SEC could delay the implementation date for pay ratio disclosure, there have been no public announcements from the SEC that this is under consideration. In addition, it does not seem likely that the SEC would take action on the pay ratio requirement before any of the currently vacant commissioner positions are filled.

In the spring of 2017, the House of Representatives approved the “Financial CHOICE Act,” complex legislation that, among other things, would repeal the Dodd-Frank pay ratio requirement. Although it has been submitted to the Senate for its consideration, at this point it is not certain when or if the bill will be debated by the full Senate. Given current legislative priorities, any action by the Senate on the Financial CHOICE Act, including its pay ratio repeal provision, might not be considered before the 2018 proxy season. And, if the Financial CHOICE Act is considered by the Senate, there is no assurance whether all of its current provisions, including the pay ratio repeal provision, will remain in what ultimately is adopted.

Practical Considerations

For all the reasons discussed above, companies should be working on the assumption that pay ratio disclosure will be required for 2018 proxy statements. Given the potential practical complexities faced by companies seeking to comply with the rule’s requirements, it is better to be ready to provide that disclosure, if needed, even if there is ultimately a reprieve.

Pay ratio preparations can be time-consuming. Among the many tasks involved in getting ready for pay ratio, companies should:

• Finalize the methodology they will use to calculate and report their pay ratio disclosure and, if necessary, coordinate their reporting systems in various jurisdictions.

• Confirm that employees who are responsible for assembling the information needed for the disclosure understand what compensation programs the company has, including those worldwide if the company has employees outside of the United States.

• Determine whether information they have gathered needs to be adjusted to reflect differences in internal compensation reporting systems in various jurisdictions.

• Develop and finalize adequate disclosure controls and procedures to ensure compliance with the SEC pay ratio rule.

• Consider whether and to what extent they want to include additional disclosures in their proxy statements to provide context for the required pay ratio disclosure.

• Begin drafting proposed pay ratio disclosure well in advance of the filing date for their 2018 proxy statements to allow time for the new disclosure to be reviewed by senior management, compensation consultants, if any, and compensation committees.

• Develop strategies for how they will deal with the various collateral issues that may arise as a result of complying with this disclosure requirement. There are many constituencies, other than shareholders, that may be interested in this disclosure. For example, once a company discloses its pay ratio in its proxy statement, half of its employees will discover they are getting paid below the median (and other employees may feel that they are not being paid as much above the median as they currently believe). Therefore, in addition to preparing for compliance with the required disclosure, companies should also be considering how they want to address these other collateral issues, including through enhanced disclosures beyond what is required or employee communications.

• Determine, based on where they do business, whether their pay ratios will trigger additional taxation by any state or municipality. Some states and municipalities are considering new taxes on companies with pay ratios exceeding specified levels. For example, Portland, Oregon, approved a 10 percent surcharge on the business tax it charges to public companies that do business in Oregon if the chief executive officer earns more than 100 times the median pay of all of the company’s employees, with the surcharge increasing to 25 percent if the chief executive officer earns more than 250 times the median.4