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SEC CEO Pay Ratio Rule May Not Survive under New Administration

Acting chair of the U.S. Securities and Exchange Commission Michael Piwowar has indicated the controversial CEO pay ratio reporting rule may be on the chopping block.

The rule, rooted in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, requires publicly traded companies to disclose median employee compensation along with a ratio of how that compares to the chief executive’s pay. The rule is effective in the company’s first fiscal year after January 1, 2017.

The rule was intended to give shareholders previously unavailable  information to consider when voting on executive compensation. The hope is that this increase in transparency would help combat pay inequality. However, Acting Chair Piwowar on February 6, 2017, announced the SEC will reconsider implementation of the rule “based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.”

The announcement comes on the heels of Trump Administration comments threatening to dismantle Dodd-Frank. Although SEC’s regulations provide options for companies to calculate the numbers to be disclosed, the new requirement nonetheless has been criticized for being too difficult to determine and potentially ineffective in meeting its goals. Many employers also are concerned the disclosures will anger employees and incite equal pay claims. This may be particularly true of employees who learn their pay is below the median.

Publicly traded companies should keep a close eye on the status of the CEO pay ratio rule. If it survives, the median employee pay amount and the ratio comparison to the CEO’s compensation must be included in the next financial disclosures. Employers may want to evaluate how best to present the information and, to prepare for potential fallout, to proactively conduct privileged pay analyses to identify and address possible hidden, systemic issues.

Jackson Lewis P.C. © 2022National Law Review, Volume VII, Number 61
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About this Author

Scott M. Pechaitis, Jackson Lewis, class actions Attorney, Discrimination Lawyer
Principal

Scott M. Pechaitis is a Principal in the Denver, Colorado, office of Jackson Lewis P.C. He represents management exclusively in all areas of employment law.

His practice is focused on litigation statistics and EEO systemic discrimination cases. He assists in the defense of class-based discrimination and wage and hour class/collective actions. He also counsels employers on workplace law matters, including hiring and pre-employment testing, layoffs, and reductions-in-force. In addition, Mr. Pechaitis prepares affirmative action plans and represents government...

303-876-2201
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