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SEC to Offer Interpretive Guidance on Pay Ratio Disclosures

To prepare companies for complying with the pay ratio disclosure requirements early next year, the Securities and Exchange Commission (“SEC”) recently approved new interpretive guidance.

The interpretive guidance outlines the market regulator’s views regarding the use of reasonable estimates, assumptions and methodologies, and statistical sampling as allowed by the pay ratio rule. In addition, the guidance clarifies that companies can use applicable existing internal records (e.g., tax or payroll records) when determining whether to include non-U.S. employees and identifying the median employee. It also offers guidance concerning when a company can use widely recognized tests in determining whether its workers are employees in scope of the rule.

Separately, the SEC’s Division of Corporation Finance (“Corp Fin”) has released pay ratio disclosure rule guidance that features illustrative examples on how to potentially use reasonable estimates and statistical methodologies. Corp Fin’s guidance aims to provide assistance with companies’ compliance efforts and reduce costs related to preparing the disclosures. Companies are encouraged to contact Corp Fin if additional questions arise.

The pay ratio disclosures are required under Section 953(b) of the Dodd-Frank Act.

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