Preparing for the New CEO Pay Ratio Disclosure

Episode Summary

Many companies and boards hoped that the Dodd-Frank-mandated CEO Pay Ratio would gradually fade away without any SEC disclosure requirements, especially given the general tenor of the Trump Administration. Alas, the 2018 deadline was undeterred, and the ratio is scheduled to go into effect for the fast-approaching proxy season. How prepared are boards to disclose this information?

In this episode, Ron Schneider, Director of Corporate Governance Services at Donnelley Financial Solutions, reviews the results from a recent webinar, which indicated that nearly 25% of boards still have “significant work remaining” when it comes to determining methodology and identifying the median employee for this year’s disclosure.

“There were some voluntary early adopters for the last several years,” explained Schneider. “The common denominator between all the early disclosures was [that the] ratios [were] primarily less than 50 to 1.”

Some companies, however, will be disclosing a much larger CEO pay ratio this proxy season, and the implications are yet to be determined. How will activists and members of the media respond to organizations at the upper end of the pay ratio spectrum? What about company employees who fall below the median salary?

Activists in the past have been known, opportunistically, to seize on governance issues or compensation issues to try and gain support amongst mainstream investors–even if that’s not their pet issue. So it’s reasonable to expect that high ratios could be another point the activists take advantage of.
— Ron Schneider, Director of Corporate Governance Services at Donnelley Financial Solutions

In this episode, Schneider reviews the various boxes your boards should have checked regarding CEO pay ratio calculations and stakeholder communications.

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