Reed Smith Client Alerts

On September 21, 2017, the Securities and Exchange Commission (“SEC”) released detailed guidance, an interpretive release, and several new or modified Compliance and Disclosure Interpretations regarding the rule that will require most public companies to disclose the ratio of their CEO’s annual pay as compared with the annual compensation of their “median employee” (commonly known as the “CEO Pay Ratio”).

While there was some speculation that this controversial rule would be withdrawn or delayed, it is now clear that the CEO Pay Ratio disclosure rule will go into effect as scheduled. Companies should already be preparing to identify their “median employee” in order to be able to provide the required disclosures in 2018. The SEC’s recent guidance provides additional details regarding how the median employee may be determined, and clarifies that companies have some flexibility with the use of statistical sampling and reasonable estimates in the identification of the median employee.

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Disclosure regarding the CEO Pay Ratio is required under section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and final regulations were adopted in 2015. The majority of public companies must include the required disclosure in SEC filings that include executive compensation disclosure for the first fiscal year beginning on or after January 1, 2017, which, for most companies, means including the required disclosure in their 2018 proxy statement based on 2017 compensation data. However, smaller reporting companies, foreign private issuers, Multijurisdictional Disclosure System filers, “emerging growth companies” under the Jumpstart Our Business Startups Act, and registered investment companies, are exempt from the CEO Pay Ratio rule.