Trump Orders Dodd-Frank Review; SEC Requests Comments on CEO Pay Ratio

Acting SEC Chairman asks staff to "reconsider the implementation" of the CEO pay ratio rule

Stephen Miller, CEBS By Stephen Miller, CEBS February 8, 2017
Trump Orders Dodd-Frank Review; SEC Requests Comments on CEO Pay Ratio

​President Donald Trump has ordered reviews of the regulations implementing the Dodd-Frank financial reform law—including a controversial rule that requires certain businesses to disclose the ratio of median worker pay to CEO compensation.

On Feb. 3, the president signed an executive order that directs the Treasury Department, in consultation with other agencies—including the Securities and Exchange Commission (SEC)—to conduct a sweeping review of the 2010 Dodd-Frank Act, enacted in response to the 2008 financial crisis. 

Republicans in Congress also announced that they are preparing a package to undo parts of Dodd-Frank. 

CEO Pay Ratio Reporting

One Dodd-Frank rule, backed by organized labor, requires publicly traded companies to disclose the ratio of CEO pay to median employee pay in their 2018 proxy statements—reporting on fiscal year 2017—and many companies are already working through the calculations involved in accordance with SEC guidance, and considering the potential impact of these disclosures on the workforce.

"The president's order is focused directly on those elements of Dodd-Frank that increased bank regulation, and stopped short of addressing rules that apply to executive compensation matters involving publicly traded companies, like shareholder "say on pay" voting and disclosure of the CEO pay ratio," said Steve Seelig, senior regulatory advisor at HR consultancy Willis Towers Watson in Arlington, Va.

"With so little time to begin gathering data to calculate the CEO pay ratio, particularly for larger, global firms, our advice continues to be to get the process moving now," he said. "Calculations can be generated based on employee demographics as early as Oct. 1, and companies should be in a position to know how their calculation will be done far before that date."

[SHRM members-only toolkit: Designing Executive Compensation Plans]

SEC Request for Comments

Nevertheless, on Feb. 6 Acting SEC Chairman Michael Piwowar issued an announcement requesting that companies submit comments that outline "any unexpected challenges" that they are facing as they prepare to comply with the pay ratio rule later this year, and that comments be submitted within 45 days. He also asked the SEC's staff to "reconsider the implementation of the rule" to determine "whether additional guidance or relief is appropriate."

"Based on Mr. Piwowar's comments, should public companies assume that the CEO pay ratio will be delayed or rescinded? In the near term, the conservative answer is no," said Donald Kalfen, a team leader with Meridian Compensation Partners in Lake Forest, Ill.

"The final rule is already in effect," said Nancy Hammer, senior government affairs policy counsel at the Society for Human Resource Management. "That means it can only be revised or repealed through the formal rulemaking process, which won't begin until after this initial 45-day comment period ends."

As for calculating the pay ratio, Seelig noted, "We've found that companies can significantly reduce their efforts using statistical sampling approaches, but even those companies are struggling to apply the SEC definition of 'employee' workforce that goes beyond common law definitions." 

He added, "SEC staff could rather quickly ease this and other data collection burdens by issuing new Compliance and Disclosure Interpretations at any time."

Unfinished Dodd-Frank Rules

Piwowar also signaled that a Republican-led SEC might not finalize a number of rules to implement provisions of Dodd-Frank, including a proposal to help shareholders determine if executive compensation is aligned with the firm's financial performance, and requirements that public companies claw back, or revoke, executives' incentive pay if the firm restates its financial results lower.  

"We already have assumed that a Republican-majority SEC would be unwilling to finalize the proposed clawback requirement and pay-for-performance disclosure," said Seelig. 

Related SHRM Article:

Trump’s Directive Could Start to Undo the DOL's Fiduciary Rule, SHRM Online Benefits, February 2017

Preparing for CEO Pay Ratio Disclosures, SHRM Online Compensation, October 2016

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