Pay Ratio to be Key Issue in 2018 Proxy Season

January 19, 2018

Despite much hope that the day would never come, the arrival of 2018 means that most public companies will be required to comply with the SEC’s pay ratio disclosure rule in their next annual meeting proxy statement or Form 10-K. In addition to reviewing the SEC’s latest guidance, those seeking sample disclosures may refer to the 2017 proxy statements of companies that voluntarily provided pay ratio disclosures.

Disclosures last year included:

NorthWestern notes, “We believe executive pay must be internally consistent and equitable to motivate our employees to create shareholder value. We are committed to internal pay equity, and the Compensation Committee monitors the relationship between the pay our executive officers receive and the pay our non-managerial employees receive.” NovaGold had similar language.

The challenge will be in explaining high multiples. A study by PayScale comparing CEO pay to median employee pay at 168 companies with annual revenue over $1 billion found the average to be about 70x, but the top five ranged from 311x to 434x. A recent blog from the National Association of Stock Plan Professionals says proxy advisors will not pay attention. Employees, on the other hand, can be expected to bristle at pay ratios they view as unduly lopsided. In addition to preparing the requisite SEC disclosures, now is also the time for companies to plan their employee communications strategies.

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