September 19, 2013

Think “Burger King”! SEC Proposes Pay Ratio Rules

Yesterday, the SEC – by a 3-2 vote – held an open Commission meeting in which it proposed pay ratio rules. The proposed rule doesn’t specify any required calculation methodologies for identifying the median employee in terms of total compensation for all employees – so companies would have flexibility (eg. can use statistical sampling) – and companies would then disclose their methodology. Have it your way!

The proposing release is fairly open-ended – so it’ll be interesting to see if that makes folks happier or uncomfortable. Flexibility is the name of the game since what you can do – which you can’t do with NEO comp – is use reasonable estimates to come up with the 402 number for the “median employee” (although there won’t be much to calculate for the median employee at most companies since they don’t get paid a dozen different ways like many CEOs). For the statistical sampling section, drop by your friendly statistician to understand it. But that should not be much of a challenge as companies conduct statistical sampling for a whole host of issues.

There’s a 60-day comment period. The proposing release specifically says there’s a transition period once final rules are adopted, allowing companies to “omit” the first year. So if the rules become effective in 2014 (which is the most realistic timeframe), then you are first required to comply in the 2016 proxy season with 2015 fiscal year information.

Here’s the 162-page proposing release – and here’s the press release. Here are statements from Chair White and Commissioners Aguilar and Stein; here are dissents from Commissioners Piwowar and Gallagher. I’m posting memos in the “Pay Disparity” Practice Area on

What This Means – There is still time to register for our upcoming pair of executive pay conferences – which starts next Monday, September 23rd – to hear what Keith Higgins, the Director for the Division of Corporation Finance, says about these proposed rules, as well as catch a “how to implement pay disparity rules” workshop that is part of the last panel on Tuesday, September 24th. If you can’t make it to Washington DC to catch the program in person, you can still watch it by video webcast, either live or by archive. Register now.

Registration for Attendance in DC – Walk-Ups Only After 9/19: Starting at 8 pm eastern tonight, you will no longer be able to register to attend in Washington through this site (however, you still will be capable of registering online to watch by video at any time). After this cutoff, you can still register to attend in DC – you just need to bring payment with you to the conference and register in-person.

SEC Goes After 23 Firms for Reg M Short Selling Violations Before Offerings

A few days ago, the SEC issued this press release announcing enforcement actions against 23 firms for improperly participating in public stock offerings after selling short those same stocks – as noted in this Reuters article, 22 of the firms settled – one has not. At the same time, the SEC’s National Examination Program and OCIE simultaneously issued a risk alert to highlight risks to firms from non-compliance with Rule 105 of Regulation M, including highlighting that in 40 settled actions finding Rule 105 violations since ’10, the SEC has collected disgorgement, penalties and interest in excess of $42 million.

More Threats of a Government Shutdown? Egads…

In case you haven’t been following the national news, there is yet another threat of a federal government shutdown that would shut down the SEC, etc. There have been so many threats and close calls, I’ve started to treat them as “crying wolf” – see this blog from April 2011. Anyways, the new D-Day is October 1st…

A member sent on this Bloomberg article about how Washington DC really works…

– Broc Romanek