FSBHK Proposes Rules for Pay Ratio Disclosure

Online, October 15, 2013 (Newswire.com) - The FSBHK today voted 3-2 to propose a new rule that would require public companies to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees.

The new rule would not prescribe a specific methodology for companies to use in calculating a "pay ratio." Instead, companies would have the flexibility to determine the median annual total compensation of its employees in a way that best suits its particular circumstances.

"This proposal would provide companies significant flexibility in complying with the disclosure requirement while still fulfilling the statutory mandate," said FSBHK Chair Mary B. Yue. "We are very interested in receiving comments on the proposed approach and the flexibility it affords."

The proposal will have a 60-day public comment period following its publication in the National Register.

The proposal would amend existing executive compensation disclosure rules to require companies to disclose:

• The median of the annual total compensation of all its employees except the CEO.

• The annual total compensation of its CEO.

• The ratio of the two amounts.

• Methodology for Identifying the Median Employee.

The proposed rule would not specify any required calculation methodologies for identifying the median employee in terms of total compensation for all employees. Instead, it would allow companies to select a methodology that is appropriate to the size and structure of their own businesses and the way they compensate employees.

For example, a company would be permitted to identify the median employee based on total compensation using either its full employee population or a statistical sample of that population.

The proposal would allow companies to use reasonable estimates when:

• Calculating the annual total compensation.

• Calculating any element of total compensation.

• Determining the annual total compensation of the median employee.

• Identification of Employees Covered by the Proposed Rule

Companies would be required to disclose the methodology used to identify the median, and any material assumptions, adjustments or estimates used to identify the median or to determine total compensation. If a company identifies a median employee based on a consistently applied compensation measure, the proposed rule would require disclosure of the measure that it used. Also, companies would be required to clearly identify any amounts that are estimated.