Disclosure on the CEO Pay Ratio: What’s the Right Approach?

Winston & Strawn attorney, Mike Melbinger, asks (and answers) a question that may be puzzling your organization. “What’s a company to do when professionals are recommending that companies keep CEO pay ratio disclosures simple while stakeholders are demanding companies publish all the details?”

Read, his blog post below, for his updates and insights on this corporate conundrum.

Wait! Some Investors Want More Disclosure on the CEO Pay Ratio?

(originally published 1.15.2019 on the Executive Compensation Blog)

Last November, I blogged on Year Two of the CEO Pay Ratio Disclosure and observed that all investors and compensation professionals on the panels at the September 2018 NASPP/CompensationStandards.com conference agreed that the best approach to disclosure was to keep it simple. Investors observed that they found lengthy explanations of the ratio and alternative ratios to be confusing. Therefore, companies and their counsel should resist the urge to explain or provide supplemental disclosure.

But wait, a group of 48 public employee union pension funds, religious orders, and social investment funds recently sent a letter to every public company included in the S&P 500 index seeking expanded CEO pay ratio disclosures in proxy statements. The group suggests supplemental disclosure (which Item 402(u) permits) as to the company’s CEO Pay Ratio and lists what they “believe to be best practices,” which including the following 12:

• Identification of the median employee’s job function
• Breakdown of the workforce by job function and/or business unit
• Geographic location of the median employee
• Country-level breakdown of global employee headcount
• A breakdown of full-time vs. part-time employment status
• Use of temporary or seasonal employees
• Use (or non-use) of subcontracted workers
• Tenure and experience of the workforce
• Workforce education levels and skillsets
• The company’s overall compensation philosophy
• Employee compensation mix (benefits and incentives)
• Alignment of CEO pay practices with pay practices for other employees

So what is a company to do? Include a simple disclosure—as many investors want? Or a more detailed disclosure, which some other investors want? Understanding that you cannot please all of the people all of the time, a company might consider whether any of the 48 Letter signatory funds holds an ownership position in its stock. If the fund’s ownership percentage is significant, the company ought to consider the request.