Understanding and calculating your Consistently Applied Compensation Measure may seem a tad premature, seeing how your company does not need to disclose its pay ratio in this FYE of December 31 2016’s annual reports and proxy materials.
For most companies, these disclosures must be included in annual reports and proxy statements beginning FYE for the first fiscal year beginning on or after December 31, 2017.
That means you need to work this math very soon and the CACM should be a consideration as you’re making 2017 compensation decisions.
Per Sullivan & Crowell LLP:
“Companies may find it helpful to conduct dry-runs of the calculation based on past compensation data in order to develop an appropriate methodology, identify and resolve interpretive, practical or disclosure issues, and ensure that systems are in place to capture information necessary to support the chosen methodology. Companies should also be mindful that the pay ratio rule requires disclosure of the methodology used to determine the median employee and any material assumptions, adjustments or estimates used to identify the median employee or to determine total compensation.”
On Wednesday, the SEC’s Division of Corporation Finance posted five new CDIs (FAQs) to help US public companies further work their the pay ratio disclosure CACMs.
- Question: If a registrant does not use annual total compensation calculated using Item 402(c)(2)(x) of Regulation S-K (“annual total compensation”) to identify the median employee, how should a registrant select another consistently applied compensation measure (“CACM”) to identify the median employee?
- Question: May a registrant exclusively use hourly or annual rates of pay as its CACM?
- Question: When a registrant uses a CACM to identify the median employee, what time period may it use? Must the period include the date on which the employee population is determined? Must it always be for an annual period? May it use the prior fiscal year?
- Question: When someone is furloughed on the date that the registrant uses to determine the population of its employees from which it is required to identify the median, must the registrant include the furloughed person in the employee population used to identify the median employee, and, if included in the population, how should the furloughed employee’s compensation be calculated?
- Question: Under what circumstances is a worker employed and his or her compensation determined by an unaffiliated third party such that the worker is considered an independent contractor or leased worker under the rule? When is a registrant considered to be determining the compensation of a worker?
You can read their answers here. Also, ask your securities law firm for their interpretation.
What Vintage will be doing – throughout 2017 – is working with clients and partners to create best practices in regard to communicating CACM visually in your annual report and proxy materials. Our president, Liam Power, recently commented on this.
Beside’s Liam, Cooley’s executive comp blog is a good read, too.