Almost daily, our clients ask us what are the odds the Securities and Exchange Commission (SEC) will delay the CEO pay ratio rule, and our response is that nothing can happen until there are enough Commissioners in place to constitute a meeting quorum. Even then, there have been questions about whether the SEC would be empowered to delay the 2018 compliance date for calendar year companies under the law, given that the regulation is final and embodies the SEC’s interpretation of a congressionally mandated disclosure.
If the SEC follows the lead of the Department of Labor (DOL), which recently decided it will not further delay its controversial fiduciary rule, we may not get a delay of CEO pay ratio. In essence, the DOL determined that as a matter of regulatory procedure, it cannot move to delay a final rule without reopening the rulemaking process for additional comments.
Regarding pay ratio, we think Acting Chairman Michael S. Piwowar’s request for additional comments earlier this year may have been anticipating this regulatory hurdle (see Acting SEC chair seeks comments on impact of CEO pay ratio implementation, Executive Pay Matters, Feb. 7, 2017), so it is possible the SEC would view those comments as supporting a delay.
Even if this was the thinking, the question would not be considered until the SEC has a sufficient number of Commissioners in place. As of today, Jay Clayton (R) is Chairman, with Kara M. Stein (D) and Mr. Piwowar (R) holding the other seats. SEC rules require three commissioners to constitute a quorum, and the thinking is that Commissioner Stein would not agree to attend a meeting where delay of the CEO pay ratio rule would be on the agenda.
With the current pace of nominees for hundreds of positions requiring Congressional approval slowed to a crawl, it is uncertain when we may see President Trump announce his choices for the SEC. Even when nominations are made, things can move very slowly in the Senate if the Democrats wish to delay the matter.
All this “inside baseball” discussion is intended to make companies aware that a lot of things need to happen quickly for a delay to be approved with a meaningful lead time. Of course, it is possible the rule could be delayed at any time before calendar-year companies start publishing their 2018 proxies; however, our advice continues to be that calendar year companies should be preparing to do their calculations as soon as October 1st (the rules permit a three month early determination date). There is not a lot of time before then for many global companies to get a good handle on data issues that must be resolved to identify their “median employee” in order to perform an accurate calculation of the pay ratio.
Steve Seelig is a senior regulatory advisor for executive compensation and Puneet Arora is a regulatory advisor in Willis Towers Watson’s Research and Innovation Center in Arlington, Virginia. Email firstname.lastname@example.org
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