Key takeaways

• Last week, the SEC adopted a final rule mandating disclosure of the ratio of CEO pay to median employee pay in filings that require executive compensation disclosure under Item 402 of Regulation S-K (e.g., Form 10-K and proxy statements, but not IPO registration statements). There are limited exceptions for smaller reporting companies, foreign private issuers, emerging growth companies and newly public companies.
• Registrants’ first reporting period under the final rule is for compensation earned during the first full fiscal year beginning on or after January 1, 2017, meaning that the first disclosure under the rule must be made in 2018.
• The final rule introduces a small number of important changes designed to address concerns that compliance costs of the proposed rule were too high, including (i) the exclusion of certain non-U.S. based employees from the pool from which the median employee is selected, (ii) the ability to use the same median employee for up to three years, and (iii) the ability to select the median employee as of any date within the three month period ending on the last day of the registrant’s fiscal year.