The Advisors' Blog

– Broc Romanek

Recently, a member posted this query in our “Q&A Forum” (#1145):

What are the disclosure implications of a company using the anointed, “independent” consultant of the compensation committee to help the company on pay ratio compliance? This question is getting at the implications for comp advisor independence when serving in this capacity for the company.

We advised that this would be a task that the consultant would be performing for management rather than the committee, and it would need to be treated that way (considered by the committee in determining independence and potentially disclosed). The consultant purportedly felt strongly to the contrary.

Two responses were posted. Here’s the one from Mark Borges:

One of the issues that companies appear to be struggling with involves this question what I’ll call “verifiability.” That is, does a company need to have its pay ratio number checked or verified and, if so, by whom.

Typically, the question comes up in the context of whether a company’s auditors will request or be asked to check the number. Since it doesn’t have financial implications, it’s not yet clear what practices will emerge.

I expect that we will see many compensation consultants assist companies in preparing their ratio disclosure. As for whether this raises independence concerns, I imagine that this will be handled by working through the Compensation Committee or with the express approval of the Committee chair and through disclosure.

I’m not sure that it otherwise raises any more independence issues than helping with the executive compensation disclosure for the proxy statement. In most instances, this assistance isn’t likely to be a “big ticket” item (although I can see how for some companies it most likely will be expensive – and thus create independence concerns if the consultant is driving the process).

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