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With compliance deadline approaching, SEC issues guidance on Pay Ratio rule

Lou Rohman, Vice President, XBRL Services, Merrill Corporation | November 15, 2016

The SEC recently released guidance on the new Pay Ratio Requirement which serves as a timely reminder to all public companies: With the January 1, 2017 compliance deadline fast approaching, it’s time to make sure you understand the new requirements—and that you’re prepared to determine and disclose them.

Pay Ratio Rule SEC Guidance Lou Rohman

What are the Pay Ratio Requirements?

Most public companies are already required to disclose executive compensation in several places. The new rule adds three new values that must be disclosed on Form 10-K of the annual report, as well as registration, proxy and information statements:

  • The median annual total compensation of all employees, excluding the Principle Executive Officer (PEO)
  • The annual total compensation of the PEO
  • The ratio of values 1 and 2, which may be expressed as a ratio or as a multiple—but not as a percentage

The rule applies to all public companies, excluding only those not currently required to disclose executive compensation—namely, smaller reporting companies, emerging growth companies and foreign private issuers.

The SEC finalized the rule back in August 2015. As part of the Dodd-Frank Act, the rule is intended to provide shareholders and potential investors with information needed to compare compensation between companies.

Keep an eye out for XBRL tagging requirements

The Pay Ratio rule does not include XBRL tagging requirements, but I wouldn’t be surprised if the SEC adds XBRL tagging in the future. The Commission has made it clear that they plan to incorporate structured data in more disclosure requirements. Moreover, the Pay Ratio values are a natural fit with the proposed Pay vs. Performance rule—soon to be finalized—that already does include an XBRL tagging requirement.

Review the new guidance—plan for 2017 compliance

We’re coming up on year-end, so if you haven’t already, I encourage you to familiarize yourself with the new Pay Ratio rule. Start by reviewing  the SEC guidance, and don’t hesitate to reach out to Merrill if you have questions.

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