The Advisors' Blog

– Liz Dunshee

During our recent webcast, “The Latest: Your Upcoming Proxy Disclosures,” Dave Lynn noted that Item 402(u) of Regulation S-K allows you to use the same median employee for up to three years – unless there’s been a “significant” change in the employee’s pay arrangements or circumstances or the employee population. Dave explained that “significant” means tectonic shifts that would impact pay ratio – not something like a standard raise, but something so significant that it could actually swing the ratio one way or the other.

This Compensia memo provides even more color – it suggests types of actions or events that would constitute a “significant” change under the rule. And for companies that have decided to use the same median employee this year, it gives an example of disclosure that would comply with Instruction 2 to Item 402:

For example, the company could disclose that there has been no change in its employee population or employee compensation arrangements that it believes would significantly impact the pay ratio disclosure. Of course, where the company has re-identified its median employee, it should say that it has done so, which will be accompanied by a brief description of the methodology that was used to identify the new median employee.