Boardroom Resources' new post: "The CEO Pay Ratio: What to Expect this Proxy Season" offers these three Do's & Don'ts for companies to ensure that their actions surrounding the pay ratio disclosure remain consistent with board best practice disclosure and communication on executive pay generally:
- DO provide context for your ratio calculations. Ensure that a section of the CD&A is dedicated to explaining how the ratio was calculated, what factors are contributing to its size, and why the compensation committee has structured CEO pay the way it has.
- DON’T underestimate stakeholder responses. Consider everyone: institutional and retail investors, employees, media, proxy advisors, etc. As employees compare their salary to the company’s median pay (or even to the median pay of competitive companies), is HR prepared to handle those objections?
- DO get ahead on shareholder engagement. If your company’s ratio is going to be at the upper end of the pay spectrum, then be proactive as you schedule meetings with your major investors. Ensure they understand why your CEO pay ratio looks the way it does and answer any questions they may have. It’s always best to contact institutional investors or proxy advisors before they contact you…
Meridian Compensation Partners Bob Romanchek also cautions that certain institutional investors, such as public pension funds, that have not articulated their intended use of the new disclosure, may use the results to inform their activism, engagement, and proxy voting. We previously reported here that BlackRock, T. Rowe Price, and Vanguard all expressed that the ratio won't be a "significant factor in their compensation analysis for proxy voting purposes" (however, one said that company peer group "outliers" may prompt engagement), and we reported on ISS's and Glass Lewis's perspectives on the disclosure here and here, respectively.
Access numerous additional resources on our Pay Ratio topical page.