The U.S. Securities and Exchange Commission (SEC) adopted a final rule on Wednesday that will require U.S. publicly traded companies to disclose the ratio of their CEOs’ compensation to the median compensation of their employees.
The new rule will provide shareholders with information they can use to evaluate CEO compensation and help inform their advisory votes on executive pay, the SEC says in a statement.
The new rules will require firms to disclose the pay ratio in registration statements, proxy and information statements and annual reports that mandate executive compensation disclosure. The rule will be effective 60 days after publication in the Federal Register, but companies won’t have to start providing disclosure until their first fiscal year after Jan. 1, 2017.
The new disclosure requirements will not apply to smaller companies, emerging growth firms, foreign private issuers, MJDS filers, or registered investment companies.
The final rule also aims to address concerns about the costs of compliance by providing companies with flexibility in meeting the rule’s requirements. For example, companies will be permitted to select the methodology for identifying their median employee and for calculating that employee’s compensation.
“The [SEC] adopted a carefully calibrated pay ratio disclosure rule that carries out a statutory mandate,” says Mary Jo White, the SEC’s chairwoman, in a statement. “The rule provides companies with substantial flexibility in determining the pay ratio while remaining true to the statutory requirements.”