Each month we post highlights from the speakers at NJ Compensation Association monthly meetings. Here’s our take from the November 9, 2016 meeting:
The discussion centered around “CEO Pay Ratio Rule” and the importance of a communication plan once the pay ratio is disclosed to appropriately inform the internal employees and external investors.
Speakers were Shaun Bisman, Principal, Compensation Advisory Partners and Sara Schexnayder, Manager of Compensation, PSEG.
Key points by attendees:
Shaun outlined Section 953(b) of the Dodd-Frank Act, otherwise known as CEO Pay Ratio Disclosure Rule, which requires public companies to disclose the “pay ratio” between the annual total compensation of the CEO and the median annual total compensation of all other employees of the company. The CEO Pay Ratio Disclosure is considered one of the more controversial disclosures in a company proxy statement.
Sara Schexnayder provided an overview of how PSEG came to define a median employee, how they are stepping through the key steps to the disclosure and thoughts of when and how they will be disclosing their CEO pay ratio.
Shaun’s presentation outlined 4 key steps in adopting the CEO Pay Ratio Rule:
1. Figure out which employees to include: Shaun explained how to determine the employees that should be counted in the median employee calculation.
2. Identify the median employee: The rule is flexible for finding them. It can be done by actual population, statistical sampling or any other reasonable method. In addition, the median employee must be calculated every three years.
3. Calculate CEO Pay Ratio: Total compensation for the median employee is computed using the same methodology as used in the summary compensation table to report CEO compensation. The rules require companies to disclose:Total Annual Compensation of its median employeeAnnual compensation of the CEO andThe ratio of those two amounts.
4. Draft the Disclosure: In drafting the disclosure, companies should tell their story and consider providing additional disclosure. The Ratio in the disclosure may be expressed as a ratio in narrative form and cannot be a percentage.
At the end of the presentation, attendees discussed the presidential election results and what would happen to this rule when Donald Trump is in office. Some think he will repeal it.
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