As we covered in a post last Friday, US President Donald Trump has issued an executive order that will result in a sweeping review of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) signed into law in 2010 by former President Barack Obama.
Dodd-Frank placed major regulations on the financial industry and included numerous provisions that required the US Securities and Exchange Commission (SEC) to implement rules about executive compensation disclosure and corporate governance. While the SEC has adopted many of the mandatory rulemaking provisions of Dodd-Frank, several rules have not been adopted or are not yet effective.
One of the most controversial and highly debated rules under Dodd-Frank is the CEO Pay Ratio Disclosure Rule (Pay Ratio Rule), which generally requires companies to disclose the pay ratio of its CEO compensation to that of its median employee (read our White Paper on the Pay Ratio Rule for more background on the requirements). While the SEC delayed compliance with the Pay Ratio Rule until companies’ first fiscal year beginning on or after January 1, 2017, many companies have begun the process of gathering the data and compensation information necessary for the required disclosure set to occur next year. However, companies may now be able to consider putting this data and compensation info gathering effort on the backburner.
In a February 6 public statement, acting SEC Chairman Michael S. Piwowar effectively hit the brakes on the Pay Ratio Rule, stating that the SEC was reconsidering the rule’s implementation. The release states that it is Mr. Piwowar’s understanding that some issuers have encountered unanticipated difficulties in meeting the reporting deadline, so he is seeking public input on any unexpected challenges experienced and whether relief is needed. The release provides for a comment period of 45 days and includes a form through which public comments can be submitted. Mr. Piwowar states that he has directed his staff to reconsider the implementation of the rule based on the comments submitted and to determine as promptly as possible whether additional guidance or relief may be appropriate.
The writing may be on the wall for the Pay Ratio Rule, as this appears to be a first step in halting its implementation. It will be interesting to see if similar actions are taken by the SEC with respect to other proposed-but-not-yet-effective rules, including the proposed clawback rule discussed in our July 2015 White Paper.
We will provide more detailed updates on the review of Dodd-Frank under the new administration as new information becomes available.