Ratio of CEO Compensation to Workers’ Pay is Required Disclosure for SEC

In August 2015, the Securities and Exchange Commission approved new rules which will enhance disclosures of CEO pay for public companies in regular filings.  The new ruling will require three simple disclosures:  the median of the annual total compensation of all its employees—except the CEO, the annual total compensation of the CEO, and the ratio of the two amounts. The purpose of the new guidance is to provide shareholders with additional information when making decisions on executive compensation. These disclosures will be required starting in fiscal years beginning on or after January 1, 2017 for all companies required to provide executive compensation disclosures under Item 402(c)(2)(x) of Regulation S-K.

The new disclosures allow companies flexibility when determining the inputs of the calculation.  For example, the ruling only requires the median employee be determined once every three years as long as there are no significant changes to the employee population.  The determination date can be any date in the last quarter of the company’s fiscal year.  There are also exceptions to exclude non-U.S employees from calculation due to local laws in other countries.  Although there are flexibilities with the inputs of the calculation, this will be another item companies will need to disclose to the user of their financial statements.

For more information, please view the complete regulatory ruling on the SEC website or contact your BNN advisor at 1.800.244.7444.

Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.

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