SEC Staff Issues New Guidance on CEO Pay Ratio Disclosure Requirements

On October 18, more than a year after the SEC amended Item 402 of Regulation S-K to require most public companies to disclose annually the ratio of the CEO's annual total compensation to the median of the annual total compensation of all other employees, the staff of the SEC’s Division of Corporation Finance published its first interpretive guidance concerning the rule. The guidance is presented in the form of five new Compliance and Disclosure Interpretations (CDIs) under Regulation S-K. The interpretations provide the staff’s views regarding (1) the selection and use of a “consistently applied compensation measure” to identify the representative “median employee,” (2) the identification and treatment of furloughed workers, and (3) the identification and treatment of independent contractors or leased workers.

Companies are required to include pay ratio disclosure under Item 402(u) with respect to compensation for their first full fiscal year that begins on or after January 1, 2017. They therefore generally will make their first pay ratio disclosure in the annual reports on Form 10-K or annual proxy statements they will file in 2018.

Click here to download a complete overview of the new guidance.

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