In these survey results (courtesy of thecorporatecounsel.net), audit firm Deloitte provides data as of April 10 regarding pay-ratio disclosures for 294 companies in the S&P 500. Interestingly, so far at least, not many of the accommodations that the SEC deliberately included in the rule to provide “flexibility” have found favor with companies. For example, the survey showed that only 8% of companies used statistical sampling, a methodology initially suggested in comments by the AFL-CIO and adopted by the SEC in an effort to make the pay-ratio rule more palatable to companies. However, for this first year of reporting, many companies have opted to take a minimalist approach; whether that changes over time as companies become accustomed to the rule and more adventurous in its implementation remains to be seen.
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.
As discussed in this PubCo post, in November of last year, the U.K. Government published a “Green Paper” on Corporate Governance Reform, which, in the face of rising economic inequality, sought “to consider what changes might be appropriate in the corporate governance regime to help ensure that we improve business performance and have an economy that works for everyone.” The Paper requested input on several proposals, including pay-ratio disclosure, giving employees more influence on company boards and making say-on-pay votes binding, leading to “a broad-ranging debate on ways to strengthen the UK’s corporate governance framework.” The results are now in. Corporate Governance Reform, The Government response to the green paper consultation identifies nine proposals for reform that the U.K. Government intends to advance. The reforms, many of which would not require legislation, are expected to become effective by June 2018 to apply in the following fiscal years. Whether any of these reforms will have a significant impact—either at home in the U.K. or as an influence abroad in the U.S.—remains to be seen.
What’s happening with those SEC proposals for Dodd-Frank clawbacks and disclosure of pay for performance and hedging? Apparently, not much.
As noted in this article from Law360, the SEC’s latest Regulatory Flexibility Agenda, which identifies those regs that the SEC intends to propose or adopt in the coming year— and those deferred for a later time—has now been posted. The Agenda shifts to the category of long-term actions most of the Dodd-Frank compensation-related items that had previously been on the short-term agenda—not really a big surprise given the deregulatory bent of the new administration. Keep in mind, however, that the Agenda has no binding effect and, in this case, could be even less prophetic than usual; the Preamble to the SEC’s Agenda indicates that it reflects “only the priorities of the Acting Chairman [Michael Piwowar], and [does] not necessarily reflect the view and priorities of any individual Commissioner.” It also indicates that information in the Agenda was accurate as of March 29, 2017. As a result, it does not necessarily reflect the views of the new SEC Chair, Jay Clayton, who was not confirmed in that post until May.