ERISA and Global Benefits

Final Pay Ratio Rule Coming in 2015? And Clawback Proposal Too?

June 03, 2015

The Global Compensation, Benefits & ERISA Practice Group

A June 2 Law360 article cites Senator Elizabeth Warren, D-MA, as saying that SEC Chair Mary Jo White “told her . . . that the [SEC’s pay ratio] rule would be completed in the fall” and follows by reporting that an SEC official has confirmed that Chair White "is committed to completing the rule in the time frame she described to Sen. Warren." Taken together, the SEC seems to be signaling that final pay ratio disclosure rules will come later in 2015. Public companies have generally been tracking the rule’s development, and submitting comments aimed at making compliance less burdensome. They may face a disclosure obligation in 2016, though delayed effectiveness until 2017 would seem more likely in order to give companies time to adapt to the demands of the final rule. Information about the proposed rule appears in our alert dated 10/30/2013, titled “CEO Pay Ratio Disclosure: Now Is The Time For Comments On The SEC's Proposed Rules.”

Also on June 2, the Wall Street Journal reported that the SEC will “soon” propose rules relating to the clawback requirements set forth in Section 954 of the Dodd-Frank Act. The article identifies July 1 as the date on which the SEC is tentatively scheduled to take action. In contrast to the narrow and seldom-utilized clawback rights in effect under Section 304 of the Sarbanes-Oxley Act, the Dodd-Frank clawback would apply not only to CEOs and CFOs but to all executive officers. It would also apply to more compensation, under broader circumstances, and require publicly-traded companies to enforce the clawbacks as a listing requirement. As a result, the SEC’s proposed rules are likely to involve directions to the NYSE and Nasdaq to proceed with amending their own rules within an SEC-prescribed period. In proposing its Dodd-Frank rules relating to compensation committee independence, the SEC addressed similarly-framed Dodd-Frank mandates, and dictated a 90-day period for follow-up by the exchanges (see pages 86-87 of the associated SEC release). If that approach is followed for clawback rules, the end of 2015 could see significant progress toward the issuance of final rules.