As a general matter, SEC rules do not mandate companies to disclose details about the composition or location of their workforces; Reg S-K requires disclosure of only the number of employees, but no information about them. And the vast majority of companies provide little detail voluntarily. But now, as this article in the WSJ reports, companies are beginning to disclose more information about their workforces overseas, and the impetus for that disclosure is the new pay-ratio rule—all at a time when issues of overseas versus domestic employment are especially fraught.
As I noted in this recent blogpost, a survey conducted by Compensation Advisory Partners LLC of pay-ratio disclosures from 150 companies with a median revenue of $2.1 billion showed that, as of March 9, 2018, the lowest ratio was 1:1 and the highest was 1465:1. What? 1:1? How did that happen? For one explanation, I refer you to this column from Bloomberg’s hilarious Matt Levine, part of which I quote below:
Equilar has just released the results of an anonymous survey of public companies, with 356 respondents, which asked these companies to indicate the CEO-employee pay ratios they anticipated reporting in their 2018 proxy statements. As you would expect, there was a lot of variation among companies based on industry, market cap, revenue, workforce size and geography. In addition, because the rule provided significant flexibility in how companies could identify the median employee and in how they calculate his or her total annual compensation, variations in company methodology likely had a significant impact on the results. These variations in the data underscore the soundness of the SEC’s view, expressed at the time it adopted the pay-ratio rule, that the rule was “designed to allow shareholders to better understand and assess a particular [company’s] compensation practices and pay ratio disclosures rather than to facilitate a comparison of this information from one [company] to another”; “the primary benefit” of the pay-ratio disclosure, according to the SEC, was to provide shareholders with a “company-specific metric” that can be used to evaluate CEO compensation within the context of that company.
Thanks to my colleagues Amy Wood, Dani Nazemian and the intrepid Mariane Konstantaras, all three of our Comp & Ben Group, we now have a sighting of pay-ratio disclosure under the new pay-ratio rules, Reg S-K Item 402(u). Apparently, the first example was not in a proxy statement but in a Form S-1 registration statement filed with the SEC yesterday.