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ARTICLE · 25 SEPTEMBER 2017

SEC Provides Additional Pay Ratio Interpretive Guidance

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The Securities and Exchange Commission yesterday issued interpretive guidance on the CEO pay ratio rule. Separately, the SEC's Division of Corporation Finance issued guidance on calculation of the pay ratio.

United StatesEmployment and HR
Ropes & Gray LLP'S Executive Compensation & Employee Benefits Practice
Ropes & Gray LLP'S Executive Compensation & Employee Benefits Practice
Ropes & Gray LLP'S Securities & Public Companies Practice
Ropes & Gray LLP'S Securities & Public Companies Practice
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The Securities and Exchange Commission (SEC) yesterday issued interpretive guidance on the CEO pay ratio rule. Separately, the SEC's Division of Corporation Finance issued guidance on calculation of the pay ratio. These moves suggest that the SEC is not expected to defer the effectiveness of the rule and that it will be in place for the 2018 proxy season.

The SEC interpretive guidance makes the following points:

  • The use of estimates, assumptions, adjustments and statistical sampling to calculate the pay ratio will not result in an SEC enforcement action unless the disclosure is made without a reasonable basis or not in good faith.
  • Companies may use their internal records to determine the 5% of the workforce used to apply the de minimis exception for foreign employees. They may also use internal records for the consistently applied compensation measure used to identify the median employee, even if those records do not include every element of compensation, such

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