Issue link: https://digital.shearman.com/i/1035494
Shearman & Sterling LLP CEO Pay Ratio: Perspectives on the First Year and A Look Forward | 13 As the year has progressed, companies have been carefully reviewing pay ratio disclosures made by other companies, particularly those in their industry to understand the methodologies used in order to better understand the level of comparability among them. As companies reflect on the first year of pay ratio disclosures, they should consider potential changes to their calculation methodology and disclosure including whether to: FUTURE CONSIDERATIONS If a company makes a change in its approach to calculating its pay ratio in 2019, it should be mindful that SEC rules may require disclosure of both the change and why it was made. Another thing that companies will be carefully watching is the various proposed and enacted legislation that tie reported CEO pay ratios to various taxes and fees. Currently six states (California, Connecticut, Illinois, Massachusetts, Minnesota and Rhode Island) have legislation pending that would increase the corporate tax rate or impose a surtax or additional fee on any corporation that reports a pay ratio in excess of certain thresholds. In addition, the City of Portland, Oregon has enacted a pay ratio surtax on a company's local business tax liability and the City of San Francisco, California has announced that imposition of a pay ratio tax is under consideration. In addition, it remains to be seen whether the SEC will issue comments on pay ratio disclosures or provide general observations on the quality of and practices used in preparing and disclosing pay ratios. It is also unclear to what extent, if at all, ISS or Glass Lewis will take into account pay ratio information in formulating their voting recommendations for 2019. The first insights into this question may be available in connection with ISS's 2019 policy formulation process. And last but certainly not least, it remains unclear how investors will view or use the 2018 pay ratio disclosures. No doubt investor views will span a wide spectrum, and companies will likely spend a fair amount of time preparing for their next round of shareholder engagement on this issue. Use the same median employee or change the methodology to identify the median employee Annualize the pay of new hires Make a cost of living adjustment Use the de minimis exception for employees in a foreign jurisdiction Include items, such as health and welfare benefits, in the median employee's pay and the CEO's compensation Present an alternative pay ratio or include a comparison to peer pay ratios FAST FACTS For the Top 100 Companies:* 224:1 Median pay ratio $74,000 Median employee pay $18.5 MILLION Median CEO compensation * Reflects information for 81 of the Top 100 Companies that reported their pay ratio on or before July 20, 2018.