Public Companies Concerned About CEO Pay-Ratio Rule

Only one in 10 companies believes that disclosure will provide important information

By Stephen Miller, CEBS Oct 16, 2013

Update: On Aug. 5, 2015, the Securities and Exchange Commission issued a final rule requiring publicly traded companies based in the U.S. to disclose how median employee pay compares with CEO compensation, known as the CEO pay ratio. See the SHRM Online articles SEC Pay-Ratio Rule Spotlights CEO Compensation and Determining CEO Pay Ratio Isn’t So Simple.

U.S. public companies are more worried about the cost and effort likely to be involved in complying with the Securities and Exchange Commission’s (SEC) proposed CEO pay-ratio disclosure rule than they are about how shareholders might react, according to a poll by consultancy Towers Watson.

Only one in 10 employers believes that the CEO pay-ratio disclosure will give investors and companies key information.

In September 2013 the SEC voted to propose a new rule that would require public companies to disclose the ratio of their CEO compensation to the median compensation of all other employees, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The agency is accepting public comments on the proposal until Dec. 2, 2013.

In the poll of 375 corporate executives and compensation professionals, conducted Oct. 1, more than half of the respondents (56 percent) expressed concern about complying with the new disclosure requirement. Specifically, the most common concerns were gathering the pay data, determining their data-sampling approach and identifying the median employee.

However, less than one-third (31 percent) said their biggest concern is where their CEO-to-worker pay ratio stands in comparison with that of their peers, the industry or the marketplace. Even fewer (21 percent) said explaining the process of determining the ratio to shareholders is their biggest concern.

“Companies are beginning to get their arms around the proposed rule and the work that will be required to comply, even though most don’t believe it will provide important information for investors,” Todd Lippincott, North America leader of executive compensation at Towers Watson, told SHRM Online. “While the flexibility that the SEC provided in calculating a pay ratio is helpful, companies will need to decide on an approach that’s valid and defensible, because they know that many stakeholders will be taking a close look at these disclosures.”

Stephen Miller, CEBS, is an online editor/manager for SHRM.​​​

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