SEC Proposes CEO Pay Ratio Rule: At Earliest, New Rule Will Not Be Effective Until 2015 Proxy Season; Issuers May Use Sampling and Estimates to Calculate Ratio

Sullivan & Cromwell LLP - September 18, 2013

This morning, a divided SEC Commission proposed a requirement that U.S. public companies disclose:

  • the median of the annual total compensation of all employees of the issuer, except the issuer’s CEO (or the equivalent);
  • the annual total compensation of the issuer’s CEO (or the equivalent); and
  • the ratio of those two amounts.

The proposal was approved by a three-to-two vote and will not affect the 2014 proxy season. The specifics of the proposal have not yet been published, and Sullivan & Cromwell LLP will issue a more detailed memorandum after their publication. Comments will be due 60 days after publication of the proposal in the Federal Register, and the objecting Commissioners have specifically requested “detailed and data-heavy” comments regarding the expected cost of complying with the proposal and the potential harm of including the additional disclosure in proxy statements.