Adoption and Implementation Issues of the CEO Pay Ratio Rule: What You Need to Know
In August 2015, the Securities and Exchange Commission (SEC) adopted the final pay ratio disclosure rules to amend Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The final rules require companies to disclose the annual total compensation of the CEO; the median of the annual total compensation of all employees, excluding the CEO; and the ratio of the median to the annual total compensation of the CEO.
The final rules will commence within the first fiscal year beginning on or after January 1, 2017. For companies with a calendar fiscal year, the pay ratio disclosure will cover the fiscal year 2017 and will be included and reported in the 2018 Annual Meeting proxy statements. Moreover, specific transition rules applicable to new registrants and companies engaged in business combinations and acquisitions are also included in the final rules.
In a two-hour LIVE Webcast, a seasoned panel of thought leaders and professionals assembled by The Knowledge Group will offer the audience with an in-depth discussion of the fundamentals as well as recent Adoption and Implementation Issues of the SEC’s Final Pay Ratio Rule. The panel will also offer their expert thoughts and opinions on how to best comply with the requirements of the rules.
Key topics include:
- CEO-Pay Ratio Rule - An Overview
- Scope and Exemptions
- Identifying the Median Employee
- Calculating Annual Total Compensation
- Disclosure of Methodology, Assumptions and Estimates
- Requirements of Pay Ratio Rule
- Key Legal Issues and Challenges
- Best Compliance Practices
Doreen E. Lilienfeld, Partner
Shearman & Sterling LLP
- Legal Framework
- The companies that are covered by the rule and in which SEC filings these companies need to include the required disclosures.
- The format for comparing the total compensation of a registrant’s principal executive officer to the median compensation paid to the registrant’s covered employees, as required by Item 402(u) of Regulation S-K.
- The flexibility afforded registrants when choosing a methodology to identify the median employee.
- How to determine the “annual total compensation” of the company’s PEO and median employee.
- Additional disclosures required by the final rule.
Samantha Nussbaum, Principal
Frederic W. Cook & Co., Inc.
- What kinds of employees are included/excluded from the pay ratio calculation?
- Treatment of foreign employees and other adjustments (cost-of-living adjustment, annualization and full-time equivalent adjustments)
- What date do you use to identify the median employee?
- How frequently do you need to identify the median employee?
- Initial steps towards compliance
- Preparing the Board
David M. Nygard, Senior Consultant
Arthur J. Gallagher & Co.
- The CEO pay ratio is actually a very simple calculation – it is the amount of effort required to identify a company’s median paid employee that can make implementation challenging.
- Don’t approach this measure as a race where you shoot for the best possible outcome in the first year of disclosure.
- After the first year, the CEO Pay ratio will function similar to EPS measures – the ratio number of any one year will matter less than the magnitude of changes from year to year (large changes could require a dialogue that may not be flattering to some).
- With some advanced preparation, most companies should be able to limit the median employee identification process to once every three years.
- Early field testing will help test the stability and impact the data techniques you select over time and help steer you away from disclosure surprises down the road.
- Don’t exclude perquisites and other personal benefits from the compensation totals of the CEO and median employee without some careful thought and testing.
- A significant source of potential sampling error could be with the inclusion or inadvertent exclusion of outside contractors.
Who Should Attend:
- Attorneys General
- Legal Counsel
- Top Level Management
- Multinational Companies
- Private and Public Companies
- Other related/interested Professionals and Organizations
Doreen Lilienfeld is the Practice Group Leader of the Compensation, Governance & ERISA Group at Shearman & Sterling. She has been involved in a wide variety of compensation-related matters, including the design and implementation of retention and compensation plans, disclosure and regulatory compliance, and employment negotiations with senior executives. She has significant experience in compensation and benefits issues relating to private equity and other mergers and acquisitions transactions. Ms. Lilienfeld has advised both U.S. and non-U.S. issuers on corporate governance and regulatory requirements relating to compensation and benefits matters. Legal directories, such as Chambers, Legal 500 US and SuperLawyers, have named Ms. Lilienfeld as a leader in her field.
Ms. Lilienfeld has been resident in the Frankfurt, London and Bay Area offices of Shearman & Sterling.
She became a partner in January 2002. For the past twelve years, Ms. Lilienfeld has spearheaded the publication of the Shearman & Sterling LLP survey of the compensation-related corporate governance practices of the largest 100 domestic issuers. Ms. Lilienfeld is an elected member of the firm’s nine member Policy Committee.
Doreen Lilienfeld is the Practice Group Leader of the Compensation, Governance & ERISA Group at Shearman & Sterling. She has …
Samantha Nussbaum is a Principal in the Los Angeles office of Frederic W. Cook & Co., Inc. (FW Cook). She has consulted on behalf of small and large private and public companies, compensation committees, and senior management on all aspects of executive compensation.
Samantha’s consulting and legal background includes advising on the following matters: employee benefit and executive compensation in the context of mergers and acquisitions, spin-offs, initial public offerings, and on an ongoing advisory basis; executive employment, severance, and change in control agreements; equity incentive plans; deferred compensation; securities laws, including reporting and disclosure; tax-qualified retirement vehicles; and the taxation of employee welfare benefits.
Samantha received a J.D. from Stanford Law School and a B.A. from the University of Pennsylvania where she graduated summa cum laude. She is a member of the California bar.
Samantha Nussbaum is a Principal in the Los Angeles office of Frederic W. Cook & Co., Inc. (FW Cook). She …
David Nygard is a Senior Consultant with more than 20 years of experience in the field of executive compensation. During his career, David has had extensive experience in developing, valuing and expensing equity and cash-based long-term incentive programs, and has assisted in the development of performance management and reward structures, both for domestic and global organizations. David has worked with boards and management to evaluate organization structures, develop competency roadmaps, prepare Compensation Discussion and Analysis disclosure statements, and establish talent/performance management programs and executive succession plans.
Prior to joining the firm, David worked at Big 4 Accounting and Human Resource Consulting Firms. He received his B.A. in Economics from Grinnell College, Grinnell, Iowa. David is a Certified Compensation Professional (CCP) and has presented on compensation topics at the annual conferences of WorldatWork and the National Center for Employee Ownership.
David Nygard is a Senior Consultant with more than 20 years of experience in the field of executive compensation. During …
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About Shearman & Sterling LLP
Shearman & Sterling is a global law firm with approximately 850 lawyers and more than 20 offices in the world’s major commercial centers. The firm is a leader in mergers and acquisitions, capital markets, financial regulatory, compensation and corporate governance, project development and finance, complex business litigation and international arbitration, asset management and tax.
About Frederic W. Cook & Co., Inc.
FW Cook is a nationally-recognized, independent firm serving corporations by providing expert consulting assistance to develop competitive compensation plans for their executives and key employees. The company is a leading advisor to Board Compensation Committees, with specific expertise in incentive plan design and insight into external trends and developments.
Since 1973, FW Cook has served more than 2,700 clients across a broad range of industries and has achieved market-leading positions among the Dow Jones Industrial, the S&P 500 and the Nasdaq 100. In addition, FW Cook serves private firms such as partnerships, ESOPs and pre-IPO companies, foreign companies and tax-exempt organizations, including trusts, foundations and universities. The company focuses on tailoring performance-based compensation programs (salaries, annual incentives, long-term incentives and stock ownership programs) which help companies attract and retain key employees, motivate and reward them for improved performance, and align their interests with shareholders.
FW Cook adds value to clients' compensation programs through an independent viewpoint, distinctive capabilities and a legacy of experience. Services include reviews of total compensation programs, development of new plans to meet client needs and objectives, and assistance in program implementation and communication.
About Arthur J. Gallagher & Co.
Arthur J. Gallagher & Co., an international insurance brokerage and risk management services firm, is headquartered in Itasca, Illinois, has operations in 31 countries and offers client-service capabilities in more than 150 countries around the world through a network of correspondent brokers and consultants. The executive compensation team within Gallagher’s Human Resources & Compensation Consulting Practice is a premier provider of independent compensation consulting services to boards of directors and senior management. This team has extensive experience in designing total compensation programs for executives that balance base salary, short-term incentives, long-term incentives, executive benefits, and perquisites.