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Survey Results Reveal Attitudes About Pay Equity Disclosure

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

March 8, 2012

According to a recent survey about the “pay equity” disclosures that will be required in future public company proxy statements, most respondents believe the requirement will be fairly burdensome, but many respondents haven’t spent much time figuring out specifically how their companies will comply. Broc Romanek reported on the results of the survey, conducted by, today in the Advisors’ Blog on (subscription site).

Background. Once SEC rules are adopted, Section 953(b) of the Dodd-Frank Act will require proxy statement disclosure of the ratio of the CEO’s annual total compensation to the median annual total compensation of all other employees. Under a timetable that was recently delayed, the SEC expects to propose these rules between January and June 2012 and to adopt final rules between July and December 2012. The disclosure requirement is likely to apply to next year’s proxy statements.

As reported in this prior post, the requirement has been controversial. Companies and commentators have been concerned about the degree of effort that the disclosures will require, and even about whether it will be possible for some companies to comply. An AFL-CIO comment letter in support of the disclosure requirement argued that the SEC should facilitate the calculations by permitting statistical sampling to determine median compensation levels, and by allowing companies to base the median employee pay level on cash compensation.

Survey Results. The results of the (non-scientific) survey (PDF) revealed:

  • Over half of the respondents said that their company has not yet considered how they will comply with the rules.
  • Of the respondents who have assessed the impact of the disclosure rule, only 14% believe the reporting burden will be not too great. The remainder believe strict compliance will either be burdensome or impossible, depending on whether statistical sampling is allowed.
  • Only one respondent reports that their company’s board, when setting executive pay, currently actually reviews and considers the ratio for which the Dodd-Frank Act requires disclosure. On the other hand, almost half of the respondents’ companies consider a different ratio when setting compensation levels – the ratio of the CEO’s pay to that of other senior executives (rather than all employees).

Comment. The last point is consistent with my experience – most boards review and consider the ratio of CEO pay to the compensation of other executives, rather than to that of the average employee. I believe this is consistent with the priorities of most institutional investors. Romanek further discussed internal pay equity in this recent blog post in Blog.


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