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Pay Ratio Silver Lining & Things to Watch in 2018

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December 15, 2017 | Jennifer Namazi

Pay Ratio Silver Lining & Things to Watch in 2018

In recent weeks I've blogged about some of the communication aspects of the upcoming CEO Pay Ratio disclosure (see Part I and Part II). As we close out the year, I couldn't help but post one more blog on the disclosure (hopefully the last one for a while on this topic) but this time to step away from communications and focus on a silver lining.

Peter Kimball from Institutional Shareholder Services' (ISS') Corporate Solutions reminded me (via presentation at our DC/VA/MD chapter meeting) that both ISS and Glass Lewis have effectively stated publicly that CEO Pay Ratio disclosure will not impact either firm's voting recommendations for the 2018 proxy season. It appears that both firms will collect the pay ratio data (the ratio of the CEO's pay to that of the median employee) from proxy statements, but won't be using that data as a factor in evaluating proxy proposals. At least that's one thing companies won't have to worry about this proxy season, particularly those that will find out that their pay ratios out of whack compared to those of peer companies. In fact, it's possible that the pay ratio disclosure won't be a factor at all - even in subsequent years, as both firms have effectively said they really don't care about the median employee pay relative to CEO pay for their purposes.

Things to Watch in 2018

Looking forward to things to keep an eye on in 2018 and beyond from a shareholder interest perspective are:

  • Gender pay gap disclosure: Shareholders are increasingly interested in understanding whether a gender pay gap exists at a company and if so, the details of the gap and action plan to bridge it. In the U.K. this is now a required disclosure for companies with more than 250 employees, and the disclosure does include stock compensation. Will the U.S. follow suit? ISS reports an increase in shareholder resolutions requesting such information, and Kimball suggests it is something to have on the radar.
  • Board Compensation: ISS is taking increased interest in board compensation for companies that have consistently been overcompensating board members with little or no transparent/justifiable explanation. This will be an area of interest in 2018 for the firm. It appears that their increased attention won't affect most companies, but those who have unusual or large board packages relative to peer companies should take note and be prepared to explain their such practices.

It seems there's always something on the horizon, and plenty to keep an eye on in 2018.

-Jennifer

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