Ceo pay ratio disclosure examples

Ceo pay ratio disclosure examples

Set forth below are examples of pay ratio disclosures from recently filed proxies where registrants chose to rely on the median employee identified in the prior year. Seaboard has elected to identify its median employee every three years unless a significant change in employee population or employee compensation arrangements has occurred. Therefore, as allowed by the SEC, Seaboard identified an alternate median employee with comparable pay as the median employee for In accordance with Instruction 2 to Item u of Regulation S-K, because there has been no change in our employee population or employee compensation arrangements in the past fiscal year that we reasonably believe would result in a significant change to our pay ratio disclosure, we elected to utilize the same median employee that we had identified in to calculate our CEO pay ratio.

The process that we used to determine our median employee in is summarized below:. Forwe used the same median employee that was identified in since there has been no change in our employee population or employee compensation arrangements that we believe would significantly impact our pay ratio disclosure.

Contact Steve Quinlivan for more information. Share This:.This Thoughtful Disclosure Alert has been revised to reflect the guidance issued by the Securities and Exchange Commission on September 21, Starting inpublic companies will be required to disclose in their annual report on Form K and definitive proxy statement the ratio of the median of the annual total compensation of their employees other than the Chief Executive Officer and the annual total compensation of their Chief Executive Officer.

This initial disclosure will be based on the compensation paid for the first fiscal year beginning on or after January 1, To help you comply with this new disclosure requirement, we have put together the following five-step guide.

CEO pay ratio update

This will ensure adequate time to both assess and document the various decisions that must be made and to identify and address any questions or other issues that arise in developing an effective compliance process.

It will also enable you to incorporate this new disclosure item into your overall schedule for preparing your proxy statement. Your documentation of this process will be useful when describing how you arrived at the pay ratio that is ultimately disclosed, as well as ensuring that you are able to repeat the process in subsequent years.

To begin, it is critical that you determine the number of workers who performed services for your company in each country where you operated or maintained a business presence for the last completed fiscal year.

In addition, you will need to determine how these workers are compensated, and understand where their compensation data resides that is, in which payroll or HRIS systems is their pay data maintained. Depending on the complexity of your organizational structure which must include your company as well as all of your consolidated subsidiariesthis data collection and analysis may be both challenging and time-consuming.

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Once you have gathered the data described above, you will need to determine your employee population. Statistical Sampling. Statistical sampling involves a process for selecting a subset of a group in this case, a subset of employees from your entire employee population in a way that provides a reasonable degree of confidence that the subset selected is representative of the entire group.

If your workforce is entirely or predominantly located in the U. On the other hand, as the size and complexity of your organization increases, and particularly where you have a global workforce or employees in multiple countries, other considerations may prevail. The goal is to fashion a representative sample of your employee population that reflects the principal characteristics of the entire population. To accomplish this, you will likely need a thorough understanding of your workforce demographics.

You will also want to identify an internal or external resource that can assist you in constructing your sample — including establishing a confidence level and degree of reliability for your sample, selecting an appropriate compensation measure as described below to apply to the sample, and then gauging the reasonability of the sample. Ultimately, a statistically valid sample either alone or in combination should reflect the characteristics of your company and its stage of development. Remember that the investment you make now in developing a valid, reliable, and repeatable sampling process may help you streamline the compliance process in future years.

For most companies, selecting a specific compensation measure to be applied across the relevant employee pool or group will probably be easier than calculating annual total compensation for every employee. The propriety of any measure will depend on your particular facts and circumstances. You are not permitted to use a rate of pay alone, however, as a compensation measure.

In all likelihood, a reasonable compensation measure will involve a formulation of cash compensation, such as base salary, Form W-2 or its foreign equivalent wages, or actual annual cash compensation, which is consistent across the subject employee pool or group.Q: What were some of the challenges companies faced with the disclosure requirement in Year One? Michael Kesner. Kesner: Collecting and verifying the data that goes into the median payroll calculation has been challenging for many companies, especially those with global operations or multiple payroll systems.

For them, it was a multi-disciplinary effort involving payroll, finance, legal, and HR. Companies that have made dozens of acquisitions and never consolidated the related payroll systems faced the task of accessing and consolidating the different payroll sources to get the data for their calculation.

At the other extreme were companies that are percent domestic, with a single payroll system for all employees, which made compiling the needed data relatively easy. There also was some confusion about exactly what data should be used to identify the median employee and what data needed to be used as total annual compensation for the CEO pay ratio calculation. The rules were generally straightforward, and the regulators added a lot of flexibility to ease the compliance burden in a number of areas.

Still, gathering the needed information was a complicated task for many companies, with important choices to make about how much information to disclose about the process they used to identify the median employee.

The variation within certain industries was even more surprising and underscores the difficulty in drawing conclusions about CEO pay.

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The wide variation in median employee pay within the retail sector shows that different companies in the same industry sector identified different jobs for their median employee. If they had all identified the same job — a store manager, for example — the data should be very close across those percentiles, but the spread is quite wide.

So, in some cases, a part-time associate could be identified as the median for one retailer, while a store manager may be the median employee for another. That suggests that the median employee pay data and resulting CEO pay ratio may not be easily comparable across companies even in the same industry.

Some critics of the disclosure rule say the reason the data is hard to compare is because companies are given too much discretion to figure out their median employee. Tara Tays. Tays: This is where the amount of extra detail a company discloses about its pay gap computation may be helpful to shareholders, although extra disclosures are not required under the law. For these companies, the most common additional detail provided included employee status, whether the individual is U.

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We also observed about 13 percent of companies disclosing supplemental ratios. Kesner: I was surprised by how few companies used statistical sampling to calculate their pay ratios versus compiling data on every employee. Our analysis found that just 8 percent of companies used statistical sampling, even though the SEC guidance was clear that several sampling methods, even some that may be based merely on reasonable assumptions, were fully acceptable.

Also, only 16 percent of the companies in our analysis included health and welfare benefits as part of their total compensation calculation for the median employee. Based on discussions with a number of companies, there was a general concern that employees may not know the value of their healthcare benefits, and could therefore feel underpaid if the higher median pay level was reported. Q : What can companies do to prepare for the release of their CEO pay ratios, from an investor relations perspective?

Kesner : Companies and their HR department should be prepared to engage in a conversation should questions emerge. Having a set of frequently asked questions and responses can be helpful.

And they should be prepared for questions that may come up at the shareholder meeting. For example, do they pay employees at the market rate? Companies might want to consider explaining to employees their pay ratio results and their philosophy with regard to rewards and compensation through appropriate internal communications. This way employees have additional information to consider when they compare their own compensation to the median compensation that is disclosed in the proxy.Pay ratios and executive pay reporting has been added to Bookmarks.

Pay ratios and executive pay reporting has been removed from Bookmarks. An Article Titled Pay ratios and executive pay reporting already exists in Bookmark library. AIM are exempt from the new regime. Options B and C offer some flexibility in calculating the pay ratios. Both options allow companies to identify, on an indicative basis, three UK employees at median, 25 th and 75 th percentile using existing pay data such as gender pay data Option B or any other recent existing data Option Cwithout necessarily having to perform the calculation under Option A for all employees.

Remuneration committees will be required to provide a summary explanation of any discretion used in respect of executive remuneration outcomes reported in the year. In the next new remuneration policy, there will be a requirement to provide an illustration of the impact of potential future share price increases on executive pay outcomes that are linked to performance periods of more than one financial year e.

We support the move to ensure that remuneration committees are aware of, and take account of, remuneration levels across the wider workforce. The use of a pay ratio, and how it moves over time, is intended to help committees in considering this.

Companies should focus on providing a clear narrative around how executive pay outcomes are aligned with business performance, as well as how success has been shared more widely across the organisation.

Companies should be aware of the greater transparency required around the actual and potential impact of share price performance on long-term incentive outcomes, as well as clearer reporting on if and how remuneration committees have exercised discretion when considering and approving executive pay outturns. The draft legislation can be viewed in full here.

Stephen is a Partner in Deloitte's Global Employer Services practice, providing advice to a number of high profile FTSE clients on all aspects of executive remuneration, including total compensatio Javascript is disabled. My Deloitte. Undo My Deloitte. Pay ratios and executive pay reporting BEIS issues legislation to deliver corporate governance reforms including pay ratios.

Save for later. The new requirements will apply to companies reporting on financial years starting on or after 1 January The first actual reporting under the new regulations will therefore be required for annual reports published in Pay ratios will be calculated on a group-wide basis by reference to UK employees only.

Supporting information will be required including the methodology used to calculate the pay ratios. Pay ratios will be disclosed in a table in the annual remuneration report, and will include pay ratio data that will build incrementally to a ten year period going forward. Therefore in the first year of reporting, only one set of pay ratios will be disclosed.

Pay ratio - methodology overview The regulations allow for three potential approaches in calculating the pay ratio. This is intended to recognise that some companies may find challenges in collecting data in a relatively short period of time.Workers also will see if they are paid more or less than the median employee.

Members may download one copy of our sample forms and templates for your personal use within your organization.

ceo pay ratio disclosure examples

Neither members nor non-members may reproduce such samples in any other way e. Publicly traded U. The disclosure is required, beginning this year, by the Dodd-Frank financial reform act. The firm's Pay Ratio Watch webpage is tracking and reporting pay-ratio data from employer proxy statements by industry and size, and Lifshey commented on the findings as of mid-March.

Overall, "the ratios are lower than forecasted, and so far the average CEO pay as compared with median-employee pay is in the to-1 to to-1 range," Lifshey pointed out. A March 13 report by New York City-based pay consultancy Compensation Advisory Partners CAP found that the median pay ratio disclosed so far was 87 times median-employee pay, based on proxy statements the firm analyzed.

Explaining the SEC Pay Ratio Disclosure Rule, and Why It Falls Short of Its Goal

CAP also found that the pay ratio correlates with company size, with larger companies disclosing higher ratios. This information may change their perceptions with regard to their current compensation," which could impact productivity and job satisfaction and lead to retention issues, said Donna Westervelt, a principal at Conduent HR Services in New York City.

ceo pay ratio disclosure examples

To manage potential reactions from employees, she advised employers to consider these questions:. In addition, "Think about groups that may have unique concerns about the pay-ratio disclosure," and what special communications needs may they have, Westervelt advised. Some examples are:. Even if the CEO pay-ratio disclosure doesn't apply to your company, organizations should be prepared to respond to questions about CEO and median-employee compensation in light of news reports that employees might see, she said.

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Applicants now have the option to test from home. You may be trying to access this site from a secured browser on the server. Please enable scripts and reload this page. March 20, Reuse Permissions. Image Caption. Magnitude of Pay Ratios Overall, "the ratios are lower than forecasted, and so far the average CEO pay as compared with median-employee pay is in the to-1 to to-1 range," Lifshey pointed out. Click on graphics to view in a separate window. To manage potential reactions from employees, she advised employers to consider these questions: What do employees know about the company's compensation philosophy and how their pay is established?

Westervelt recommended putting in place a clearly worded employee value proposition or total rewards statement to shift the focus beyond pay. Have you prepared managers to respond to questions they receive? As first-line communicators, managers are often viewed as the most trustworthy source of information for employees, she noted. Ensure that they're comfortable talking about career and learning opportunities to help employees grow in their careers and increase their pay.

Some examples are: Employees with a similar job title to that of the median employee. Groups that have employees paid on both sides of the median.

ceo pay ratio disclosure examples

Groups that have expressed interest in pay transparency or pay equity, such as employees within collective bargaining units. Communication Compensation Communication Executive Compensation. You have successfully saved this page as a bookmark. OK My Bookmarks. Please confirm that you want to proceed with deleting bookmark.As we move towards the start of the proxy season, we also begin the second year of compliance with Item u of Regulation S-K, the CEO pay ratio rule.

While compliance should generally be easier for companies that had to make their initial pay ratio disclosures inthere are still some important decisions that will have to be made as part of the second year compliance process, primarily involving the selection of the median employee whose compensation will be compared to that of the Chief Executive Officer.

This Thoughtful Disclosure Alert summarizes the rules relating to whether a company may use in year two the same median employee that it used in its year one disclosure, or whether it must go through the process of identifying a new median employee for purposes of its disclosure. Background Item u of Regulation S-K, the pay ratio disclosure rule, requires most public companies to disclose in their annual report on Form K and definitive proxy statement the ratio of the median of the annual total compensation of their employees other than the Chief Executive Officer and the annual total compensation of their Chief Executive Officer.

In other words, a company may use the same median employee for up to three years, assuming that doing so is reasonable. Change in Employee Compensation Arrangements If a company has experienced a change in its employee compensation arrangements during the last completed fiscal year that it reasonably believes would result in a significant change to its pay ratio disclosure, then it must go through the process of identifying a new median employee.

The rule does not offer any insight into what constitutes a change in compensation arrangements and the SEC Staff has not provided any guidance on what type of change would prompt the need for a new median employee. Presumably, adding a new or eliminating an existing compensation element to its employee compensation program, such as the introduction of an annual incentive plan or a decision to grant or not grant equity awards broadly, would be the type of action that may preclude using the same median employee in a subsequent year.

While, in our experience, programmatic changes to broad employee compensation arrangements do not happen frequently, ultimately, each situation will have to be evaluated on its own facts and circumstances. In addition, the change has to be one that the company reasonably believes will have a significant impact on its pay ratio disclosure. Change in Employee Population If a company has experienced a change in its employee population during the last completed fiscal year that it reasonably believes would result in a significant change to its pay ratio disclosure, then it also must go through the process of identifying a new median employee.

Such a change can either be an increase, such as the result of a major acquisition or through material organic growth, or a decrease, such as a reduction in force or a major divestiture, in the employee population.

And, once again, there is no guidance either in the rule or from the SEC Staff to assist in determining when any such change would be considered to have significant impact on the pay ratio disclosure. In this instance, if the company reasonably believes that the change in circumstances would result in a significant change in its pay ratio disclosure, then it may use another employee whose compensation is substantially similar to the original median employee based on the compensation measures to select the original median employee.

In other words, the company can use a second employee from its original identification process with substantially similar compensation as its median employee. It does not have to go through the process of identifying a new median employee in this situation.

Additional Disclosure Required Where a company has concluded that it may use the median employee from its disclosure in its disclosure, it must disclose that it is using the same median employee in its pay ratio calculation and describe briefly the basis for its reasonable belief that such use will not significantly affect its pay ratio disclosure. For example, the company could disclose that there has been no change in its employee population or employee compensation arrangements that it believes would significantly impact the pay ratio disclosure.

Of course, where the company has re-identified its median employee, it should say that it has done so, which will be accompanied by a brief description of the methodology that was used to identify the new median employee. Finally, while the rule is silent on the matter, presumably where a company has changed its median employee because the original median employee is no longer suitable for purposes of the disclosure, a company should disclose that it has replaced the original employee with a new median employee based on its original calculation.

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Need Assistance? January 24, Thoughtful Disclosure Alerts. Read More.CEO pay ratio update has been added to Bookmarks.

Complying With the CEO Pay Ratio Disclosure Requirement

CEO pay ratio update has been removed from Bookmarks. Inpublic companies began disclosing the ratio of chief executive officer CEO compensation to that of their median employee. Following is a summary of our findings for the companies that have disclosed their CEO pay ratios and related methodologies, along with some considerations for the second year of the CEO pay ratio disclosure requirement.

Back to top. CEO pay ratio overview Download the PDF Primary takeaways from additional pay ratio disclosures In general, the updated information and our observations are similar to the original report, as the latest batch of company filings were similar to the earlier disclosures. Here are some of the main takeaways:. In addition to the key takeaways mentioned above, we have identified some considerations for companies that will soon be preparing their CEO pay ratio disclosures.

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ceo pay ratio disclosure examples

Please enable JavaScript to view the site. My Deloitte. Undo My Deloitte. CEO pay ratio update Analysis of additional pay ratio disclosures. Save for later.

Explore content Dodd-Frank CEO pay ratio requirement Primary takeaways from additional pay ratio disclosures Additional insights Considerations for pay ratio disclosures Get in touch Join the conversation Related topics. Primary takeaways from additional pay ratio disclosures In general, the updated information and our observations are similar to the original report, as the latest batch of company filings were similar to the earlier disclosures.

There is large variation in pay ratios across industries, within an industry, and across revenue sizes. There is, however, one clear trend: Typically, the larger the organization, the higher the CEO pay ratio. Eighty two percent of companies placed the CEO pay ratio disclosure immediately following the termination table. There was a fairly even distribution in the Consistently Applied Compensation Measure CACM used by companies—base pay 21 percent ; total cash compensation 30 percent ; total direct compensation, which includes equity 21 percent ; and W-2 wages 20 percent.

Only 8 percent of companies added benefits to the CACM. One was due to a one-time pension adjustment and two were for cost of living adjustments.