Sunday, September 22, 2013

SEC Issues New Proposed Regs on Pay Disclosure Ratio

The Securities and Exchange Commission today voted 3-2 to propose a new rule that would require public companies to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees. 
The new rule, required under the Dodd-Frank Act, would not prescribe a specific methodology for companies to use in calculating a “pay ratio.”  Instead, companies would have the flexibility to determine the median annual total compensation of its employees in a way that best suits its particular circumstances.
The worry, however, is that it may be hard to draw inferences or comparisons across industries or even among competitors. There are also opportunities to distort the numbers by firms hiring more highly paid employees and outsourcing to contractors lower-paid, lower skilled activities. I see lots of work on the horizon for lawyers, regulators, HR/comp consultants and others. 
Ah, the magic of unintended consequences!


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