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Thursday, August 6, 2015

SEC Adopts CEO Pay Ratio Disclosure Rule

By a 3-2 vote, the Securities and Exchange Commission yesterday approved a final rule requiring public companies to disclose the ratio of the annual compensation of the CEO to the median of the annual compensation of the company’s employees. The rule, mandated by the Dodd-Frank Act, requires companies to include the pay ratio in registration statements, proxy and information statements and annual reports for fiscal years starting on or after Jan. 1, 2017.

Companies are permitted some flexibility in adopting a method for identifying the “median employee.” They may use the total employee population or a statistical sample, but subject to certain exceptions the company must include all employees regardless of domicile, full-time status or whether they are employed by a subsidiary. Companies are permitted to identify the median employee once every three years unless changes intervene that would significantly affect the pay ratio.

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