The NASPP Advisor: The Trump Card – An Update on SEC & Regulatory Trends

The NASPP Advisor: The Trump Card – An Update on SEC & Regulatory Trends

August 18 2017

Meet the Speakers

This year, we are pleased once again to continue our popular “Meet the Speakers” series. These interviews give our readers a preview of what they will learn at the 25th Annual NASPP Conference. The Conference will be held in Washington, DC, from October 17 to 20. Register today at

The Trump Card: An Update on SEC & Regulatory Trends

The session “The Trump Card: An Update on SEC & Regulatory Trends” will examine pending and final rules to help companies prepare for an uncertain future. We asked panel moderator Michael Sherry of Steven Hall & Partners for some advance tips.

NASPP: Given the uncertain regulatory landscape that exists at the moment, how should companies plan for the future?

Michael Sherry, Steven Hall & Partners: The saying “hope for the best and prepare for the worst” is applicable here. Companies should be planning for what is expected of them and treating the current set of regulations on the books as what will need to be adhered to. It is certainly prudent for companies to keep a watchful eye on new developments and potential changes, but that is not an excuse to delay preparation for current regulations. It’s a delicate balance. No company wants to commit significant resources to the implementation of regulations that have the potential to end up not being mandatory (e.g., the CEO pay ratio). But on the other end of the spectrum, not being prepared to comply with a new regulation when it goes into effect is a far less desirable position for any company to be in.

Companies should not feel as if they have to make these determinations alone. It takes a village! They should lean on the expertise and advice of outside advisors in today’s complex governance and regulatory environment.

NASPP: What are the biggest challenges you see facing companies when implementing the CEO pay ratio?

Sherry: First are the more obvious challenges, which involve the actual calculation of the ratio itself. Most difficulties companies face in this regard center around the determination of the median employee. There are so many factors that can make that part of the calculation very complex: aggregating your employee pay data, having non-US workforces, outside contractors, seasonal or temporary employees, etc.

Another challenge we see companies preparing for is the mitigation of potential negative reactions after the ratio is published. Corporate governance groups and other outside interested parties (like the media) will be comparing companies’ ratios to those in the same industry as well as across industries. We all know how the media loves to focus attention on who it deems to be “overpaid,” and the ratio will likely be utilized in the same regard. Companies should be prepared ahead of time with an explanation.

Internal considerations are also critical. The published ratio will likely result in a very personal and negative reaction for a portion of your workforce and leave some employees wondering why they are paid below the median. Companies should have a strategy in place ahead of time to deal with this unintended consequence of the pay ratio. They should also ensure that employees are being paid appropriately and within industry norms. Those confirmations can help form the basis of an internal communications program to help combat any fallout.

NASPP: What do you think the odds are that the CEO pay ratio disclosure rules will be repealed?

Sherry: I think the odds are pretty slim that the rules will be repealed before they go into effect for the 2018 proxy season. Even though the Financial CHOICE Act (which repeals the pay ratio rule) was passed by the House in June, my understanding is that the bill is unlikely to pass the Senate without significant modifications. Most estimates I’ve seen by people in the know (far more than me!) give it approximately a 25% chance to pass. While there is a decent probability that financial regulatory reform will be passed in the future, it will likely be modified from its current form; and even more relevant to the question, it will likely not be occurring anytime soon. There is also always the possibility of the SEC postponing the implementation date, but that appears unlikely as well at this point. The bottom line is that nothing is likely to happen before spring 2018, so companies should be preparing to move ahead with the pay ratio disclosure for next proxy season. Stay tuned!

➤ Be sure to tune in for Michael’s session “The Trump Card: An Update on SEC & Regulatory Trends” at the 25th Annual NASPP Conference.