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According to new survey results from Pearl Meyer, most companies have some sense of what their pay ratio is, but surprisingly, the actual ratio hasn’t yet formed the basis for substantive discussion at the board level. Consultants say it may be time to add it to an upcoming meeting agenda.
According to Sharon Podstupka, principal in the New York office of Pearl Meyer, it's not critical for boards to have discussed their company's CEO Pay Ratio, since many teams are still working through the numbers.
"That being said, this should be something they should start talking about, if they haven't already. Having a clear picture of what the disclosure will look like is the first and most important step to developing a broader messaging strategy," Podstupka says.
Two thirds (66%) of the 276 companies surveyed for Pearl Meyer's annual pay practices survey say their boards have not held any discussions regarding upcoming pay ratio disclosure.
The pay ratio rule—mandated by Dodd-Frank and approved by the SEC in 2015—will require companies to disclose the ratio of their CEO's pay to that of the median employee’s. This coming proxy season is the first that such disclosures will be required, and experts are expecting the disclosures to be "short and sweet," Podstupka says.
Podstupka says that if their company has not yet done a pro forma calculation, boards should ensure internal comp and HR leaders are well on the way to completing one. The majority of survey respondents—56%—say they have already completed a pro forma calculation.
In addition, companies should have already or nearly finished identifying their population and median employee, Podstupka explains. They should also be selecting a date in the last three months of the fiscal year from which to pull their employee population data, she says.
"Most companies that we are talking with are getting there, but companies that are not already eyeballs deep in data collection and ironing out their methodologies are behind schedule at this point," Podstupka adds.
Furthermore, few companies have held discussions about communication strategies, the survey found.
Podstupka says both sides of the issue are critical. The disclosure, which will be reported in the compensation discussion and analysis section of the proxy form, is likely to generate keen media attention. If employees were previously unaware that they could look up their CEO's pay in SEC filings, they'll soon find out, she says.
"Proxy statements are about to rise to a whole new level of visibility," she says.
Boards should ensure that internal stakeholders such as HR teams and line managers are prepared to answer questions about the company’s compensation philosophy and what the ratio means.
"So, if questions come up, they're prepared to answer them in an effective way, instead of going down a path that's not going to be meaningful," Postupka says. "They need to be prepared … to answer questions from employees and shareholders and proxy advisors and unions and the media."