A Brief Overview of the New Dodd-Frank CEO Pay Ratio Disclosure Rules

On August 5, the Securities and Exchange Commission (SEC) officially approved what has been called the “CEO pay ratio disclosure rule” under the Dodd-Frank Act. This new rule will require the majority of publicly traded companies to openly disclose how much their CEOs make in relation to the median income of the company’s other employees.

The following is a quick overview of some of the key facts of the rule:

  • The rule applies to all companies who are required under Item 402 or Regulation S-K to disclose executive compensation. It does not apply to smaller reporting companies, emerging growth companies and foreign private issuers.
  • The CEO pay ratio must be disclosed anywhere executive compensation information is required to be disclosed. This includes proxy statements, registration statements and Form 10-K.
  • The primary focus and purpose of the law is to better compare the amount CEOs are making to the average employee of their organizations. Companies must put together a list of how much all employees make to determine the median income. Then, the company creates the ratio of the median income to the CEO’s total annual compensation.
  • Registrants may use simplified methods to figure out the median income employee, such as W-2 wages or other records.
  • All employees, whether full-time, part-time or seasonal, must be considered as part of figuring out the median income employee.
  • The CEO pay ratio will be described in official forms either narratively (200 times that of the median compensation of employees) or numerically (the ratio of the median compensation of employees to that of the CEO is one to 200).

For more information on this new rule under the Dodd-Frank Act, consult an experienced Dallas attorney at Whistleblower Law for Managers.