WASHINGTON (CN) - The Securities and Exchange Commission has proposed rules that provide options for company executives required to disclose salary ratios under the Dodd-Frank Act.
The rules would implement a section of the Dodd-Frank Wall Street Reform and Consumer Protection Act mandating the disclosure of the ratio between the annual compensation received by a company's CEO and the company's employees.
Certain companies would be required to disclose the median annual total compensation of all employees except the CEO, the total compensation of the CEO, and the ratio between the two, under the rules.
The SEC's action also addressed comments it previously received about the changes. Many of the comments from industry groups, law firms and executive compensation professionals concerned the high cost of compliance and "the potential inability for many companies to verify the accuracy of their disclosure," the SEC wrote.
Frederick W. Cook & Co. said, for example, "the calculation of median total pay for all employees other than the CEO is problematic, burdensome and perhaps impossible for many issuers."
The SEC responded that "in light of the significant potential costs articulated by commenters, [it] believe[s] that it is appropriate for the proposed rules to allow registrants flexibility in developing the disclosure required by the statute."
Under the proposed rules, registrants would be able to pick from several options, including their full employee population or a statistical sample to identify the median ratio. "We do not believe that a one-size-fits-all approach would be prudent, given the wide range of registrants and the disparate burdens on registrants based on factors such as their type of business and the complexity of their payroll systems," the SEC wrote.
The SEC seeks comment on whether the proposed rules sufficiently address the practical difficulties of data collection and whether there are other alternative approaches consistent with Dodd-Frank that could provide the potential benefits of pay ratio information at a lower cost.
Comments on the proposed rule are due by Dec. 2.