Among the several instructive CEO pay ratio proxy statement disclosure and voluntary supplemental proxy and non-proxy communications recommendations offered by Willis Towers Watson in this new memo: "The Do’s and Don’ts of CEO Pay Ratio Communications" is that companies focus on educating employees about the fairness of their compensation rather than striving to identify (subject to the rule's broad parameters) a median employee whose pay will yield fewer employees below the median - an approach that many companies reportedly are considering, which the firm believes would have only a nominal impact.
The memo (which - along with other Pay Ratio resources - was reported on in last week's Society Alert) suggests companies consider these five action items to educate their workforce about how their total compensation is determined and its comparability to the market:
- Help employees understand why their pay is fair and competitive… it’s just one element of their total rewards.
- Explain how pay ranges are set using a competitive analysis and how employees’ positions within the ranges influence pay decisions.
- Define what median means and how it affects calculation of the ratio.
- Train managers to have effective pay discussions.
- Help senior leadership know what the pay ratio means, how it compares to other organizations and how to respond to questions without being defensive or dismissive.
Relatedly, Society attendees at Friday's ABA meeting reported that Corp Fin Director Bill Hinman said that Staff would soon be issuing guidance that would reduce issuers' cost of compliance, but seemingly would not otherwise change the nature of the ratio or defer disclosure requirements. Watch for additional developments in this week's Society Alert.