What does the pay ratio ruling mean for IR?

Last week, the SEC approved a widely discussed new rule that requires listed companies to disclose the ratio of pay of their CEO to that of their median employee.

Supporters include activist investors, who cite increased transparency and a move towards true pay fairness at US companies. Two Republican commissioners voted to oppose the rule change, however.

The UK has had a similar requirement in place for a few years, where companies must disclose the annual percentage change in both CEO remuneration and employees’ pay from the previous year though it’s widely thought to be too flexible a benchmark to be useful for real comparisons.

‘The UK legislation ultimately is about creating a framework, giving greater transparency, and the ability to compare similar companies, and looks to investors and companies to reach a position with which they would both be comfortable,’ says Mirit Ehrenstein, a professional support Lawyer at Linklaters. ‘So far we have not seen institutional investors focusing on the percentage change ratio – they are more concerned about linking pay to performance and appropriate returns to shareholders.’

There’s a danger, she continues, that too much flexibility means there’s a risk that the SEC’s enforced disclosures could become as meaningless as the UK’s has arguably become.

Victor Li, vice president for Kingdsale Shareholder Service’s governance advisory and proxy analytics arm, says however that the SEC ruling differs from the UK’s laws on a fundamental level. ‘The median pay depends on the distribution of employees in a company but makes the disclosure a bit more straightforward and probably more accurate,’ he explains.

Hier geht es zum gesamten Artikel, erschienen im IR Magazine am 13.08.2015