US employers must reveal CEO and median staff pay gap


The US Securities and Exchange Commission (SEC) has adopted a final rule that will require public employers in the US to disclose the difference in pay between the chief executive officer and the median compensation received by other employees.

Organisations can choose what methodology they use to identify their median employee and that employee’s compensation. 

This new rule, mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, provides American organisations with some flexibility when calculating the pay ratios. It will require disclosure of the pay ratio in registration statements, proxy and information statements.

Employers will be required to provide disclosure of their pay ratios for their first fiscal year beginning on or after 1 January 2017. 

The disclosure rule permits US organisations to make the median employee determination once every three years and to choose a determination date within the last three months of the organisation’s fiscal year.

It also allows employers to exclude non-US staff and does not apply to smaller reporting or emerging growth businesses.

Mary Jo White, chair of the Securities and Exchange Commission, said: “The Commission adopted a carefully calibrated pay ratio disclosure rule that carries out a statutory mandate. The rule provides organisations with substantial flexibility in determining the pay ratio, while remaining true to the statutory requirements.”

Charles G. Tharp, chief executive officer of the Center On Executive Compensation, commented: “An [organisation’s] pay ratio will be a unique result of that individual [organisation’s] business structure, mix of skills of the employee population, the countries in which the [organisation] does business and compensation practices [it uses], rendering any comparison between businesses or within an individual business over time very difficult, if not meaningless.”

This rule follows the news that employers in the UK with more than 250 employees will have to reveal differences in pay between male and female members of staff. A consultation into gender pay gap reporting was launched by the UK government in July 2015.