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SEC CEO Compensation Rule Is Coming Soon -- Again

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By Gabriella Khorasanee, JD on August 26, 2013 11:01 AM

After the 2008 financial meltdown, the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") was enacted to reform our crumbling financial services industry. After languishing for several years because of hastily drafted imprecise wording, The Wall Street Journal reports that a requirement of the Act may soon be taking effect: disclosing the gap between CEO compensation and "rank-and-file employees." (Subscription only).

The Washington Post reports that Mary Jo White, SEC Chairwoman hopes the rule will be finished by September and stated: "We are very much as a staff and commission focused on that rule-making."

The rule would look at CEO compensation as a factor of median worker pay -- that is, the middle (as opposed to the average) -- of worker pay. The AFL-CIO has come out in support of the rule and claims that "CEOs of S&P 500 Index companies made 354 times the average wages of rank-and-file workers in 2012." The measure is meant to give investors insight into company practices, but the Post reports that the AFL-CIO is hoping that "[d]isclosing this pay ratio will shame companies into lowering CEO pay."

So what does this mean for your company?

Many critics of the rule say that it will be costly and burdensome to carry out. Presumably, the delay in drafting the law has arisen out of the need to find something that could be easily executed across the board.

Based on Chairwoman White's statements, we can expect to see a new rule in September. It may be wise to get a team together on this to formulate a plan on how to comply with the rule. Having the legal team meet up with human resources and finance seems like a good place to start. Having everyone on the same page at the initial phase will make it much easier to put a plan in place.

The best kind of preparation is, well, to be prepared.

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