SEC Adopts Interpretive Guidance on Pay Ratio Rule

October 2017

The US Securities and Exchange Commission (SEC) has approved interpretive guidance for use by companies in complying with the pay ratio disclosure requirement mandated by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC pay ratio disclosure rule requires companies to begin making pay ratio disclosures in early 2018. The SEC’s guidance:

  • Explains the SEC’s views on the use of reasonable estimates, assumptions and methodologies, and statistical sampling permitted by the rule
  • Clarifies that a company may use appropriate existing internal records, such as tax or payroll records, to identify the median employee and in determining whether to include non-US employees
  • Discusses when a company may use widely recognised tests to determine whether its workers are employees for purposes of the rule.

Separate guidance issued by the staff in the Division of Corporation Finance (Corp Fin) includes examples illustrating how companies may use reasonable estimates and statistical methodologies. Corp Fin encourages companies to contact Corp Fin staff if they have additional interpretive questions as the compliance date approaches.

The SEC interpretive guidance is available on this link.

The Corp Fin staff guidance is available on this link.

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