On August 5, 2015, in a 3-2 vote, the SEC adopted the rule implementing the controversial pay ratio requirement pursuant to the Dodd-Frank Act. The rule requires companies to disclose:
- the median of the annual total compensation of all employees, excluding the principal executive officer, or CEO;
- the annual total compensation of the CEO (which is already required to be disclosed); and
- the ratio of these two amounts.
The new rule applies to companies required to provide executive compensation disclosure under Item 402(c)(2)(x) of Regulation S-K in proxy statements or annual reports on Form 10-K, as well as registration statements or other filings. Most companies are required to report the pay ratio disclosure for their first fiscal year beginning on or after January 1, 2017.