Risk & Compliance

SEC Mulling Tweak of Pay-Ratio Disclosure Rule

Some stakeholders favor excluding segments of a company’s workforce to calculate a ratio of executive to average worker pay.
Katie Kuehner-HebertJune 5, 2015

The U.S. Securities and Exchange Commission has requested public comment on the impact of revising a proposed rule that is intended to disclose the income disparity between a company’s top executive and average worker.

Disclosure of a ratio of executive to average worker pay is required under the Dodd-Frank financial law. In 2013, the SEC proposed that companies could choose a variety of statistical methods to calculate the ratio to save time and expense.

Public comments on the proposal have suggested excluding segments of a company’s workforce in calculating the ratio of the median of the annual total compensation of all employees of the issuer to the annual total compensation of the chief executive officer of the issuer.

According to an SEC staff analysis that was made available Thursday for public comment, such an exclusion could cause variations in the pay ratio of 3.4% to 15%.  Public comments are due by July 6.

“The staff believes that the analysis will be informative for evaluating the potential effects on the accuracy of the pay ratio calculation of excluding different percentages of certain categories of employees, such as employees in foreign countries, part-time, seasonal, or temporary employees as suggested by commenters,” the SEC said.

As The Wall Street Journal reports, a number of companies, particularly multinationals, have expressed concerns about calculating the median for all of their workforce.

Freeport-McMoRan Copper & Gold wrote in a letter to the SEC that including all employees in the ratio calculation would present “significant data collection burdens,” considering the company has 34,000 employees in 20 different countries and 15 decentralized payroll systems.

Garmin, which has 10,000 full-time employees in 30 countries, wrote in its comment letter that it would be challenging to navigate foreign data privacy laws, adjust compensation for currency fluctuations and account for differences in local benefits provided in so many countries.