In this new memo: "The CEO Pay Ratio Disclosure Requirement: Time to Get Started," Compensia advises companies to assume that regulatory relief is not forthcoming any time soon (or soon enough), and to move forward with Pay Ratio rule compliance preparations.
Along those lines, the firm has provided this updated guidance for preparing and disclosing the ratio consistent with the rule and associated SEC Staff C&DIs issued in October 2016. The guidance outlines how to effect this 5-step process for compliance, which - critically - is designed to be "reasonable, defensible, and repeatable":
- Data collection
- Determination of employee population from which the median employee will be identified
- Evaluation of compensation arrangements & identification of median employee
- Calculation of annual total compensation
- Determination of pay ratio & preparation of disclosure
Each step of the suggested process is accompanied by relevant rule requirements and considerations, along with instructive compliance tips that may be equally beneficial to those who have not yet begun preparations, as well as those who are in the thick of the process but are seeking greater assurance that their methodology is sound.
The guidance also suggests companies consider an employee communications strategy to mitigate the likely adverse effects associated with reactions to the median employee's compensation - particularly from those employees whose compensation is below the median. Suggested approaches to investor and employee communication strategies were specifically reported on in each of the past two weekly Society Alerts.