In its most recently published regulatory rulemaking agenda, the SEC delayed its final action date for issuing rules to implement the internal pay ratio disclosure requirement in Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The rulemaking agenda previously provided that the SEC intended to issue final rules no later than October 2014, but now has rolled that date back to October 2015. The rulemaking agenda sets forth the SEC’s rulemaking priorities for the coming year, but does not establish deadlines and may not even reflect the order in which rulemaking will be undertaken, meaning that the Commission could still adopt final internal pay ratio rules prior to October 2015. Based on the proposed internal pay ratio rules, the final rules are projected to apply to the first full year following the effective date, meaning that if final rules become effective in 2015, the rules would first apply to 2016 compensation and the internal pay ratio disclosures would need to be included in companies’ 2017 proxy statements. However, the Commission could revise these provisions in its final rules to require earlier or allow for a later compliance date. The SEC likewise extended the final action dates for proposing rules under the other compensation-related provisions of the Dodd-Frank Act dealing with clawbacks, pay-for-performance disclosure, and director and employee hedging disclosure from October 2014 to October 2015.
As discussed in our earlier blog post, available here, on September 18, 2013 the SEC issued the proposed internal pay ratio rules, which would require companies to disclose in their SEC filings the median of annual total compensation of all employees other than the CEO (or any equivalent position), the annual total compensation of the CEO (or any equivalent position) and the ratio of those two amounts. The proposed rules have been met with over 126,000 comment letters to date, many of which are form letters in support of the proposed rules. Critics of the proposed rules have expressed concerns regarding the cost of compliance as well as the lack of economic benefit and potentially misleading nature of the required disclosures.