Earlier this month, the Securities and Exchange Commission voted in a 3-2 split to propose the much anticipated CEO pay ratio rule, which would require disclosure of the ratio of a company’s median employee compensation level to the company’s CEO compensation. As evidence of the contentious nature of the rule, the SEC noted that it received almost 23,000 comments before the rule was even proposed, with corporations and their advisers asserting that the costs of compliance would be much greater than any benefits of disclosure, and investor groups asserting that the disclosure may help inform investment and voting decisions and possibly rein in pay levels. As discussed below, the SEC’s rule proposals are designed to give companies flexibility in identifying the “median” employee and in calculating total employee compensation, as long as the methods and related disclosures comply with certain basic principles and are reasonable and consistently applied. 

Comments on the rule are due by December 2, 2013. It is unclear how quickly the SEC will act in finalizing the rule, but the new rule is not expected to take effect before the 2015 proxy season.

Click here to read our client alert summarizing the key terms of the proposed rule.