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Oct 21, 2015

US board members oppose pay ratio disclosure

Companies may be prompted to outsource low-wage work to contractors, BDO USA survey finds

Almost three quarters (74 percent) of members of the boards of public companies say an upcoming rule that would require US corporations to disclose the ratio between CEO pay and the pay of the median worker will provide no meaningful benefit, according to a BDO USA survey.

Slightly fewer board members (72 percent) back the SEC’s proposed clawback rule that would oblige companies to take back executives’ incentive bonuses if companies have to issue a financial restatement due to errors. But 78 percent believe boards should be able to choose when to apply the rule.

The 2015 BDO Board Survey, which interviewed 150 directors, also finds that 87 percent oppose an SEC proposal to require disclosure of communications between the audit committee and the external auditor. More than half (53 percent) say the SEC should develop mandatory disclosure rules for corporate political contributions.

‘We are clearly seeing a greater awareness and dialogue among directors with respect to both pending requirements and proposed new rules related to executive compensation,’ says Jim Willis, a senior director in the compensation and benefits consulting practice of BDO USA, in a press release. ‘While board members are generally supportive of some regulations, such as the SEC’s proposed new rule requiring companies to claw back incentive pay when material reporting errors necessitate a financial restatement, directors question the value of others.’

When asked their main concerns regarding the CEO-median employee pay ratio disclosure rule, which will take effect starting with 2018 proxies, 74 percent of those surveyed say it will bring no meaningful benefit to investors. About 10 percent say they are most concerned by external reactions to the ratio while for 8 percent the potential for unfair comparison with other companies is of greatest concern.

More than half (58 percent) of the survey respondents say the pay ratio disclosure rule could also prompt companies to outsource low-wage work to contractors to make the ratio more publicly acceptable.