SEC rule proposal could have implications for executive compensation

For companies across the nation, executive compensation has become an issue in recent years. Under a proposed rule from the SEC, companies may soon have to disclose how much their chief executives make compared to the average rank-and-file employee.

Executive pay would have to be expressed as multiple of median worker pay

The proposed executive compensation disclosure rule resulted from the Dodd-Frank reforms of 2010. However, lack of a clear deadline in the Dodd-Frank reforms and extensive lobbying efforts by businesses have prevented the rule requiring a public comparison of average worker pay to CEO pay from going into effect for more than three years. Even so, as of September, 2013, the SEC is expected to finalize a rule proposal shortly - although the finalized rule proposal would still take as long as a year to implement.

The basic framework of any proposed rule will be that companies will be required to publicize their CEO's compensation in the form of a multiplier of the company's median worker pay. For instance, imagine the median salary at a company was $43,000, which is the average wage for U.S. workers across all industries according to the latest figures from the Bureau of Labor Statics; in addition, the CEO's pay at that company was $8.7 million. The CEO's pay would be disclosed as 204 times that of the median worker at the company under the likely proposed rules (according to Bloomberg, 204 is the average multiplier of CEO pay to that of rank-and-file employees across the S & P 500 Index of companies).

Proponents of the executive pay disclosure rule say it would help inform investors. Some companies, however, feel that gathering the data required to implement the rule would be onerous and would not further any business purpose.

Pursuing an executive position? An attorney can help with your compensation package

Executive compensation can be a touchy subject in today's business climate. But, effective leaders are essential to the success of a business, nonprofit or any other type of organization. Businesses must pay for top talent, and the best executives deserve a premium for their services.

If you are an executive, particularly if you are pursuing a position with a high-tech company, the issue of your compensation can be tricky. The new SEC proposed rule that is expected soon will only further complicate matters. You need to strike a balance between the compensation you deserve for your services, and a pay structure that will appease shareholders.

An executive compensation attorney can help those pursuing high level leadership positions, securing the best employment terms possible. If you are negotiating an employment agreement or have other legal issues relating to executive compensation, get in touch with an attorney today.