The SEC has announced that, on August 5, it will meet to consider adopting final rules regarding CEO pay ratio disclosure. The SEC proposed these rules in September 2013. As proposed, the rules would require public companies to disclose the CEO’s annual total compensation in relation to the median annual total compensation of all other employees of the company, including foreign, part-time and temporary employees. It is not yet known what the final rules will require. We will circulate a Sidley update analyzing the new rules when they are available.
It seems likely that—whatever form the final rules take—litigation will be brought challenging them. Several SEC rulemakings in recent years have been invalidated through litigation, often on the basis that the SEC has not undertaken sufficient economic analysis of their impact. That the SEC is mindful of this with respect to these rules is evidenced by its publication, on each of June 4 and June 30, of an analysis conducted by the Division of Economic and Risk Analysis regarding the impact of excluding various percentages of employees from the pay ratio calculation.