This change meets the requirements set out in section 953(b) of the Dodd-Frank Act.
The SEC received over 287,000 comment letters on its pay ratio rules and has incorporated some of the concerns into the final rule.
SEC chair Mary Jo White indicated that the rules adopted today provide additional company-specific information about important executive compensation practices, which shareholders now have a specific say on. The final rule does include provisions aimed at reducing the cost of compliance, including:
- Flexibility in the methodology used to calculate the median employee, which can be based on the registrant’s total employee population or a statistical sample;
- The median employee must only be determined once every three years, unless significant changes would reasonably be expected to significantly change the median employee calculation;
- The median employee can be determined on any date within the last three months of the registrant’s fiscal year;
- Non-US employees can be excluded from the calculation if it would violate foreign data privacy laws to obtain certain information; and
- Companies can exclude up to 5% of its overseas workers from its pay ratio calculation.
The final rule does require companies to calculate the median employee using all employees, including full-time, part-time, and seasonal employees.
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