ARTICLE · 03 NOVEMBER 2017

Pay Ratio Not Applicable To Certain Externally-Managed Issuers

Hunton Andrews Kurth LLP

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Many public issuers that are master limited partnerships ("MLPs") or real estate investment trusts ("REITs") have no employees, and instead...

United StatesFinance and Banking

G. Michael O'Leary

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Many public issuers that are master limited partnerships ("MLPs") or real estate investment trusts ("REITs") have no employees, and instead, are externally managed by a related entity pursuant to a service agreement. This fact pattern, which is common to MLPs and REITs, raises a question of whether the issuer has to comply with the pay ratio disclosure rules of Item 402(u) of Regulation S-K (the "Pay Ratio Rule") if neither it, nor any of its consolidated subsidiaries, have employees.

Basic Requirements of the Pay Ratio Rule. The Pay Ratio Rule generally requires an issuer to disclose the ratio of the total compensation of the median employee of the issuer and its consolidated subsidiaries, to the total compensation of the issuer's Chief Executive Officer.

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