Pay Ratio Disclosure

Law and Proposed Regulations:  

2017.09  Pay Ratio Disclosure - Samples.  See Gencor Industries, Inc. Proxy Statement (2/2017) and Texas Republic Capital's Proxy Statement (5/2017).

2017.03.23   SEC Pay Ratio Comment Letter – Paul Hastings Assists American Benefits Council.  On March 23rd, the American Benefits Council submitted a comment letter to the SEC in order (1) to reiterate general opposition to the Dodd-Frank Act’s pay ratio disclosure rule; (2) to encourage the SEC to delay the effective date of its pay ratio disclosure rule; and (3) to propose cost-saving alternatives. In the latter respect, the Council’s suggestions include allowing issuers to use base pay alone when identifying their median-paid employees, and allowing the exclusion -- when making that determination – of independent contractors, part-time, seasonal, and temporary employees, and employees working outside the U.S.  Paul Hastings acted along with Davis & Harmon as outside counsel to the American Benefits Council with respect to this comment letter, and was led by Mark Poerio who serves on the Council’s executive board.

2016.04.10 Four Sample Proxy Statement Disclosures of Pay Ratio.  See this blog.

2016.02.16  NorthWestern Corp's Two CEO Pay Ratio Disclosures -- 19:1 vs 26:1.  This preliminary proxy statement provides comparative disclosure of the CEO pay ratio according to the issuer's formula (26:1) and an application of Dodd-Frank rules (19:1), with the Dodd-Frank ratio being smaller due predominantly to the inclusion of employer-provided benefits in the compensation of the median employee.  That "add-in" occurred under the line item "All Other Compensation" which the Summary Comp Table defines as follows:

  • Employee benefits include employer contributions, as applicable, for health benefits (medical, dental, vision, employee assistance plan and health savings account), group term life and 401(k) plan, which are generally available to all employees on a nondiscriminatory basis.  (PDF page 44 of 78.)

2015.June.13   CEO Pay Ratio - Impact Surveyed.  This Harvard Law Blog describes, and includes a link to, an academic study whose findings are summarized in the blog as follows:

"We find that [say on pay] voting dissent is greatest at both the lowest and highest levels of the ratio, consistent with information on pay disparity influencing voting behavior. Increased voting dissent at the highest levels of the ratio aligns with arguments that disclosure of the ratio may serve as a catalyst to reign in what investors believe to be excessive CEO compensation. However, it is interesting to note that dissent is also high for banks with the lowest levels of the pay ratio, which could be consistent with the view that some level of pay disparity is necessary to provide appropriate incentives for effort within organizations.
"We further examine whether the ratios are predictive of future firm performance and risk to see if investors voting behavior is consistent with underlying firm outcomes. Our findings reveal a similar non-linear relationship where the highest and lowest pay ratios result in the lowest (highest) performance (risk). The economic magnitudes of these effects, however, are relatively small. Thus in the end, it appears that the pay ratio provides significant information concerning shareholder voting behavior, but only limited information about actual economic outcomes."