September 22, 2017

The SEC (& Corp Fin) Issue Boatloads of New Pay Ratio Guidance

Yesterday, the SEC – and Corp Fin – unleashed a torrent of guidance on the pay ratio rule – including this 7-page interpretive release, this detailed guidance from Corp Fin on calculating pay ratios – and one new, one revised & one withdrawn CDI.

This guidance is huge. For example, I am reading the interpretive guidance on sampling – and it appears to be far more expansive than what I’ve heard consultants have been recommending. In fact, I immediately lengthened the time allotted for the “sampling” panel during our upcoming comprehensive “Pay Ratio & Proxy Disclosure Conference” given that the standard for using sampling is now basically “not unreasonable & not in bad faith.” Over on, Mark Borges has blogged his initial analysis.

I think a lot more folks are going to be using sampling than before. And you will want to hear how to do it. Our “Pay Ratio” conference is just three weeks away!

So the interpretive release lays out the SEC’s views on the use of reasonable estimates, assumptions and methodologies – as well as the statistical sampling permitted by the rule. It also clarifies that companies may use appropriate existing internal records in determining whether to include non-US employees & in identifying the median employee – and provides guidance as to when widely-recognized tests may be used to determine whether workers are employees.

Corp Fin’s guidance on calculating pay ratios supplements the interpretive release. Topics addressed include:

– Ability of companies to combine the use of reasonable estimates with statistical sampling or other reasonable methodologies
– Examples of various sampling methods & the permissibility of using a combination of sampling methods
– Examples of situations where registrants may use reasonable estimates
– Examples of other reasonable methodologies & the permissibility of using a combination of reasonable methodologies
– Hypothetical examples of the use of reasonable estimates, statistical sampling & other reasonable methods

Finally, Corp Fin also updated the Reg S-K CDIs addressing pay ratio to reflect changes wrought by the new interpretive release:

Revised CDI 128C.01 was updated to add a reference to the new interpretive release – which clarifies that CACMs can be formulated with internal records that reasonably reflect annual compensation, even if the records don’t include every pay element, such as widely distributed equity
New CDI 128C.06 addressing the permissibility of referring to a pay ratio as an “estimate” was added
– Withdrawn CDI 128C.05, which addressed classification of a worker as an independent contractor v. an employee was withdrawn

Next Wednesday’s Webcast: “Pay Ratio Workshop – What You (Truly Really) Need to Do Now”

For those registered for the upcoming “Pay Ratio & Proxy Disclosure Conference,” tune in next Wednesday, September 27th – 2 pm eastern (audio archive goes up when the program ends; transcript available in a week or so) – for the third in a series of three monthly webcasts that serve as a pre-conference: “Pay Ratio Workshop: What You (Truly Really) Need to Do Now.” The first webcast was on July 20th; the second webcast was August 15th (transcript & audio archive available for both).

The speakers for Wednesday’s webcast are:

Mark Borges, Principal, Compensia
Ron Mueller, Partner, Gibson Dunn
Dave Thomas, Partner, Wilson Sonsini
Amy Wood, Partner, Cooley

Register Now: This is the only comprehensive conference devoted to pay ratio. Here’s the registration information for the “Pay Ratio & Proxy Disclosure Conference” to be held October 17-18th in Washington DC and via Live Nationwide Video Webcast. Here are the agendas – 20 panels over two days. Register today.
Broc Romanek