Corporate pay ratio plan divisive

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Posted: Tuesday, April 1, 2014 12:00 am

Almost 1,000 “unique” letters have been sent to the Securities and Exchange Commission about the issue. An additional 127,000 form letters have also rolled in.

They come from backers and opponents of a new rule that will require most public companies to disclose the ratio of the total annual compensation of their chief executive to the median pay of “all” of a company’s employees.

The SEC is responsible for coming up with the final rules, which were mandated by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

In September, the agency proposed rules, and under the proposal, if the median of the annual total compensation of all company employees is $45,790, for example, and the annual total compensation of a CEO is $12,260,000, then the pay ratio disclosed would be 1-to-268, meaning the CEO’s annual total compensation is 268 times that of the median of the annual total compensation of all employees.

Industry groups, companies, law firms and executive compensation consultants have raised concerns about the complexity of the requirements and the cost to calculate the ratio. They also say it’s not important or helpful to investors.

Smaller companies, typically those with less than $50 million in revenue, would be exempt. Compliance costs for some companies could be “substantial,” the SEC said in its 162-page document with the proposed rules.

“It’s a tremendous undertaking for any large international company with no concomitant benefit to its shareholders,” Bob Murphy, a former SEC lawyer, said.

Still, he believes that the final rules will be adopted this year “substantially as proposed,” with the pay ratio disclosure required in 2016 proxy statements.

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