U.S. public companies, other than emerging growth and smaller reporting companies, are tackling their first pay ratio disclosures. The SEC's pay ratio rule, mandated by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and adopted as Item 402(u) of the SEC's Regulation S-K, is applicable for the first fiscal year beginning on or after Jan. 1, 2017. This means that calendar year-end companies will be making the disclosures in their 2018 proxy statements.
The pay ratio rule requires disclosure of:
- The median of the annual total compensation of all employees of the company, except the principal executive officer (PEO);
- The annual total compensation of the PEO; and
- The ratio of these two amounts.
A company must select a specific date within the last three months of the fiscal year (by Dec. 31) for determining the employee population from which the median employee will be identified.
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