Thursday, August 29, 2013

Pay Ratio Rules are Coming

I've written about it many times. It lives in Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. It's the pay ratio requirement. If this is new to you, you can get the background on it here. The New York Times wrote about it recently and finds no evidence as to how or why Senator Menendez (D-NJ) added that section into the Act. Perhaps this site maintained by AFL-CIO was a motivating factor.

I write about this again because of the rumor mill surrounding the SEC (I know, you can't find it in the supermarket tabloids).This rumor mill tells me that the SEC will provide its first guidance on this and other [Dodd-Frank] Title IX issues next month (September 2013).

Suppose you are an employer subject to Title IX (generally an SEC registrant), what should you do and what should you look out for?

If you are in the simplest of all situations-- that is, no employees outside of the US, no part-timers, no seasonal employees, no equity compensation, no defined benefit plans and no perquisites, your job is easy. CEO compensation and that of other employees is going to look a lot like W-2. You might even have a centralized payroll system on which you can run a report and easily determine who the median-paid employee in the company is. This could be a 30-minute exercise.

Oh, you're not in that simplest of all situations? It's going to be more complicated then. You will be faced with the exciting prospect of currency conversions, actuarial present value calculations, Black-Scholes calculations, gathering of data from multiple payroll feeds, and determination of the value of other benefits on which you usually don't place a price tag.

We think that one of the reasons that the SEC has taken three years to provide rules on much of Title IX is that they have not been able to figure out what makes sense. After having received thousands of comment letters, many suggesting simplifying procedures, apparently they are close. We will see soon what the rules look like.

In the meantime, if you fall into the group of companies that has one or more of the "problem areas", you will want to see what the rules say and see how they will affect your company. When the rules are published, you can read my analysis here. It may not cover every legal detail as the ones from law firms do, but I hope that it will give you practical advice.

And, now or then, if you'd like to get a head start on how to deal with this, e-mail me and we can discuss how to handle your situation.

It's not going to be pretty, I'm afraid.

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