WASHINGTON (Reuters) - The Securities and Exchange Commission is granting public companies more leeway in how they go about calculating the ratio between how much a chief executive makes compared to its median workforce.
The regulator provided additional guidance Thursday on how companies must go about calculating that pay ratio, mandated as part of the 2010 Dodd-Frank financial reform law.
Under the new guidance, the SEC said it would not specify precise methods companies must use to calculate the ratio, after companies had complained of challenges in determining the median income of its employees.
“It’s our priority to make sure that we implement disclosure rules mandated by Congress in a way that is true to the mandate and, to the extent practicable, allows companies to use operational data and otherwise readily available information to produce the disclosures,” SEC Chairman Jay Clayton said in a statement.
The SEC said it would not specify what “other reasonable methods” companies could use to calculate the ratio, “allowing each registrant to determine the method that best suits its own facts and circumstances.”
Dislcosure of the pay ratio had been advocated by some institutional investors, including unions and pension funds, who argued it would help them determine the appropriate levels of executive compensation.
The SEC finalized the rules in 2015, and companies will begin disclosing the ratio in 2018 as part of their fiscal 2017 disclosures. In February, then-SEC Acting Chairman Michael Piwowar announced the agency was soliciting public comment on any “unexpected challenges” companies were finding in complying with the new rule, and considering additional guidance.
Reporting by Pete Schroeder and Michelle Price; Editing by Jonathan Oatis