On August 5, 2015, the Securities and Exchange Commission (the “SEC”) adopted a final rule requiring public companies to disclose the ratio of the annual total compensation of the chief executive officer to the median of the annual total compensation of the company’s employees. According to the SEC, the rule provides companies with substantial flexibility in determining the pay ratio and helps inform shareholders when voting on “say on pay”.
The rule will require disclosure of the pay ratio in registration statements, proxy statements and information statements, and annual reports that are required to include executive compensation information as set forth under Item 402 of Regulation S-K. The disclosure will be required for the companies’ first fiscal year beginning on or after January 1, 2017.
The rule will not apply to smaller reporting companies, emerging growth companies, foreign private issuers, MJDS filers, or registered investment companies. The rule will also provide transition periods for newly reporting companies, companies engaging in business combinations or acquisitions, and companies that cease to be smaller reporting companies or emerging growth companies.
The rule was mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act and will be effective 60 days after publication in the Federal Register.