As we previously discussed in our memorandum of August 2, the Dodd-Frank Act directs the SEC to amend the proxy rules to require disclosure of the ratio of the median annual total compensation of a company’s employees (excluding its chief executive officer) to the total annual compensation of its chief executive officer. For the sake of clarity, the median is the number exactly between the top and the bottom — not the average. This means that, on its face, the rule would require each of the nation’s 12,000 public companies to determine the value under the proxy disclosure rules of each element of compensation provided to each employee of the issuer on an annual basis and then to calculate the median amount of such compensation.

Based on the statute, it appears that this disclosure is required for all companies covered by the Securities Act of 1933 and the Securities Exchange Act of 1934, which includes, in addition to companies listed on a public exchange, companies with public debt and those that are otherwise obligated to file periodic reports with the SEC (but does not include foreign private issuers). Unlike other compensation-related provisions of the Act, such as say on pay, the Act does not appear to provide the SEC with express exemption authority from the pay ratio disclosure.

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