SEC Adopts Pay Ratio Rules

Introduction

On August 5, 2015, the Securities and Exchange Commission (“SEC”) adopted rules, as directed by Congress in Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Section 953(b)”), to require disclosure of the median of the annual total compensation of all employees of a registrant, excluding the Chief Executive Officer (the “CEO”), the annual total compensation of the registrant’s CEO, and the ratio of those two amounts (the “Rules”).

In enacting Section 953(b), Congress chose not to divulge the purpose or objectives of the mandated disclosure. In adopting the Rules, the SEC labored mightily to fill that hole, stating in the adopting release (Securities Act Release No. 33-9877; Securities Exchange Act Release No. 34-75610; the “Release”) that “we believe Section 953(b) was intended to provide shareholders with a company-specific metric that can assist in their evaluation of a registrant’s executive compensation practices .