New Rule on Executive Pay

On August 5, the SEC approved a final “pay ratio” rule requiring large public companies to disclose the ratio of chief executives’ pay to the median pay of employees. Companies will have to report the ratio every three years, in registration statements, proxy and information statements, and annual reports. The Dodd-Frank Act of 2010 mandated the rule, but there was substantial resistance to it from corporate interest groups that claimed it would necessitate complex accounting changes and be too costly. To accommodate companies with fewer resources, the rule exempts smaller reporting companies, emerging growth companies, foreign private issuers, MJDS filers, and registered investment companies. The rule, which will take effect in 2017 (disclosures will not begin until 2018) is intended to provide valuable information to investors and shareholders in evaluating whether executive pay is excessive.

Related Reading:

SEC Adopts Rule for Pay Ratio Disclosure, SEC Press Release, Aug. 5, 2015.

SEC’s New Pay Ratio Disclosure Rule Explained, Richard C. Shea, The National Law Review, Aug. 11, 2015.

Editorial, A Long Time Coming, Sunlight on the Executive Pay Gap, The N.Y. Times, Aug. 6, 2015.

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