Newsflash: Trump Administration Discloses Another Rule in Doubt - SEC Questions the "Pay Ratio" Regulation

February 07, 2017

Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") requires a public company to disclose the ratio of the median of the annual total compensation of all employees to the annual total compensation of the chief executive officer.‎ The U.S. Securities and Exchange Commission (the "SEC") has issued regulations under Section 953(b), effective for years starting on or after January 1, 2017. The pay ratio rule has been controversial, given the complexity of the rule in practice and significant disagreement as to the usefulness of the rule.

Earlier this week, on February 6, 2107, the acting head of the SEC issued a public statement questioning the rule. The statement expresses the understanding that "some issuers have begun to encounter unanticipated compliance difficulties that may hinder them in meeting the reporting deadline" and encourages the submission of detailed comments‎ "within the next 45 days."‎ The statement also directs the SEC staff "to reconsider the implementation of the rule based on any comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate."

The move follows the February 3 Executive Order generally directing a reexamination of the regulatory scheme under U.S. securities laws. This latest action may be seen as part of a wider move of the Trump administration to scale back regulatory activity that it sees as overly complex or otherwise inconsistent with the priorities of the new administration, notably including Dodd-Frank.

The existing pay ratio rule would generally not be effective for most issuers until the 2018 proxy season. As a result, there should be time in most cases for issuers to await further SEC action on the rule before making final decisions as to how to proceed.

If you would like to discuss what this may mean for the pay ratio rule, or if you have any other questions regarding the rule, please contact the Dechert attorney listed below or any Dechert attorney with whom you regularly work. 

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