This week, the Association's Center On Executive Compensation submitted comments to the SEC in response to Acting Chair Piwowar's request for comments on pay ratio reconsideration, which provided extensive examples of compliance difficulties facing HR Policy members as well as the shortcomings of the flexibility the SEC included in the final rule. The Center's comments provide useful illustrations as to why the Commission should move beyond staff guidance and reopen the pay ratio rule, thus hopefully delaying the first disclosures in 2018. The comments provided several examples of why the SEC should require the pay ratio to be based on U.S. employees only, focusing on the excessive data gathering challenges for companies—even when a company has a single human resource information system. Other key arguments included:
- Exclude Part-Time, Temporary, and Seasonal Employees: The Center urged that the pay ratio calculation should include only full-time employees noting that companies do not usually have easy access to records regarding key information, such as hours worked, on part-time employees in many markets, thus resulting in an immense data-gathering exercise.
- Clarify Exclusion of "Independent Contractors": The Center detailed the substantial confusion in interpreting the final pay ratio rules regarding whether certain independent contractors, including those employed individually or by a staffing firm, need to be included in the pay ratio and urged that they clearly be excluded.
- Complications Arising From the 5 Percent De Minimis Exemption: The Center explained how the “choose one, choose all” caveat of the 5 percent de minimis exemption should be reworked to allow companies to exclude pockets of employees within countries when the compensation data is extremely difficult to access, which is unlikely to have a significant effect on the median employee determination.
- Allow a "Calculation Date" at Any Point in the Year: The Center explained how the calculation date—the date within the last three months of the fiscal year used to determine the median employee—should be made more flexible to allow companies to select any day in the previous fiscal year to maximize their ability to use pre-existing tax records, like W-2 forms, for greater numbers of employees.
As things stand, the final pay ratio rule is in effect, with first disclosures required in 2018. Most material changes would require the SEC to re-open the pay ratio rule, which requires the SEC to develop a proposal and obtain a majority vote of the Commission. That is unlikely to happen until the Commission has a full complement of five Commissioners. In the meantime, the Center will continue its advocacy for pay ratio revision and repeal.
