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Compensia's "Complying With the CEO Pay Ratio Rule in 2019" discusses the three scenarios under which companies may need to identify or select a new median employee for their 2019 (or Year 2) CEO pay ratio disclosure based on the rule, which permits use of the same median employee for three years provided there has been no change in the company's employee population or employee compensation arrangements during its last completed fiscal year that the company reasonably believes would result in a significant change to its pay ratio disclosure.

1. Changes in employee compensation arrangements that may trigger the need to identify a new median employee could consist of, for example:

• Adding a new or eliminating an existing compensation element to the employee compensation program, such as the introduction of an annual incentive plan or a decision to grant (or not grant) equity awards broadly
• Providing significant and systematic compensation increases to a single category of employees (such as engineers or other technical employees)

2. Changes in employee population that may trigger the need to identify a new median employee might include an increase (as a result of, e.g., a major acquisition or material organic growth) or decrease (via, e.g., a RIF or major divestiture) in population.
3. Changes in the prior year median employee's circumstances that may require the company to select another employee could include, for example, the employee's terminated employment, promotion with a material change in compensation, or other significant change in his/her compensation. In those cases, the company may use another employee from its prior year's determination process whose compensation is substantially similar to its prior year median employee.

The instructive memo suggests companies make disclosure about the median employee regardless of whether they are using the same median employee, a newly identified median employee due to a change in employee compensation arrangements or population, or a newly-selected median employee from the prior year determination process.