The Advisors' Blog

– Broc Romanek, CompensationStandards.com

As I blogged yesterday, the SEC – by a 3-2 vote – held an open Commission meeting in which it proposed pay ratio rules. There’s a 60-day comment period. The proposing release specifically says there’s a transition period once final rules are adopted, allowing companies to “omit” the first year. So if the rules become effective in 2014 (which is the most realistic timeframe), then you are first required to comply in the 2016 proxy season with 2015 fiscal year information.

The proposing release is fairly open-ended – so it’ll be interesting to see if that makes folks happier or uncomfortable. Flexibility is the name of the game since what you can do – which you can’t do with NEO comp – is use reasonable estimates to come up with the 402 number for the “median employee” (although there won’t be much to calculate for the median employee at most companies since they don’t get paid a dozen different ways like many CEOs). Have it your way! For the statistical sampling section, drop by your friendly statistician to understand it. But that should not be much of a challenge as companies conduct statistical sampling for a whole host of issues.

Here’s the 162-page proposing release – and here’s the press release. Here are statements from Chair White and Commissioners Aguilar and Stein; here are dissents from Commissioners Piwowar and Gallagher.

I’m posting memos in the “Pay Disparity” Practice Area – but just in case you wanted the “bullet overview” from Johnson & Johnson’s Doug Chia:

1. Proposed rules are designed to provide “significant flexibility” to companies
2. No prescribed methodology for calculating/identifying median employee
3. Companies can use the methodology that best suits its particular circumstances
4. “Statistical sampling” could be one such methodology (i.e., company could use a sample of its employee population for purposes of finding the median)
5. Companies may identify median employee based on any “consistently applied compensation measure” (e.g., wages, overtime amounts recorded in tax filings) and then apply Rule 402 to calculate the total compensation for that employee
6. Companies can use reasonable estimates to calculate total compensation for the median employee
7. Companies must include full-time, part-time, seasonal, and international employees as of the last day of the fiscal year
8. Companies will be permitted to annualize compensation of full-time employees who did not work for the whole year
9. Companies will not be permitted to annualize temporary or seasonal employees
10. Estimates and assumptions must be disclosed
11. Ratio must be disclosed in filings that require executive compensation disclosures (e.g., Form 10-K/proxy statements, registration statements)
12. Disclosure must be provided no later than 120 days after end of fiscal year

– What This Means – There is still time to register for our upcoming pair of executive pay conferences – which starts next Monday, September 23rd – to hear what Keith Higgins, the Director for the Division of Corporation Finance, says about these proposed rules, as well as catch a “how to implement pay disparity rules” workshop that is part of the last panel on Tuesday, September 24th. If you can’t make it to Washington DC to catch the program in person, you can still watch it by video webcast, either live or by archive. Register now.

Registration for Attendance in DC – Walk-Ups Only After 9/19: Starting at 8 pm eastern tonight, you will no longer be able to register to attend in Washington through this site (however, you still will be capable of registering online to watch by video at any time). After this cutoff, you can still register to attend in DC – you just need to bring payment with you to the conference and register in-person.