Securities Regulation Daily Wrap Up, PUBLIC COMPANY REPORTING AND DISCLOSURE—Executive Compensation Group Opposes Commissioner Aguilar’s Position on Pay Ratios, (Feb 22, 2013)

By Anne Sherry, J.D.

In a letter to SEC Commissioner Luis Aguilar dated yesterday, the Center on Executive Compensation responded to the commissioner’s suggestion in a February 20 statement that companies voluntarily disclose a pay ratio in their upcoming proxies. Commissioner Aguilar urged public companies to provide investors with all of the information they need to exercise their voting power in an informed and effective manner, even if that means going beyond the “letter” of the Commission’s rules. The Center stated that investors have not expressed broad interest in the pay ratio and that the SEC has not yet finalized rules implementing the Dodd-Frank requirement.

Pay-for-performance and pay ratio. The industry group contrasted pay ratio information with pay-for-performance disclosure. Companies are voluntarily increasing pay-for-performance supplemental disclosures, the Center said, and it looks forward to continuing to discuss alternative approaches to disclosure with the SEC. With respect to pay ratios, however, the Center asserted that investors are not asking for this information, and shareholders tend not to support shareholder proposals on pay ratio disclosure.

Dodd-Frank implementation. The Center further argued that disclosure is premature as the SEC has not finalized implementing rules on the subject. If companies voluntarily disclose the ratio now, they will in the future have to explain why this ratio differs from the calculation required by the implementing rules, the letter stated.

Pay-ratio calculation. Finally, the group noted that it opposes the pay ratio requirement, finding the calculation of the median compensation of all employees globally to be “unjustifiably complex.” The Center believes that the cost of calculating the ratio outweighs the benefits of providing the information. Furthermore, it said, companies’ pay ratios reflect differences in markets rather than differences in risk.

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