Korn Ferry Hay Group Study: Companies Unprepared to Comply with SEC’s CEO Pay Ratio Disclosure Ruling
Los Angeles. October 26, 2016
Respondents Concerned About Ratio Not Reflecting Reality as Well as Potential for Misleading Public Perception
LOS ANGELES, Oct. 26, 2016 — A new survey by the Hay Group division of Korn Ferry (NYSE: KFY) of leaders from U.S. publicly traded companies across several industries shows organizations are unprepared to comply with the Security and Exchange Commission’s (SEC’s) CEO Pay Ratio disclosure ruling.
The ruling requires public companies to disclose the ratio of the total compensation of their Chief Executive Officer (CEO) to the total compensation of the median employee. Data will first have to be compiled for fiscal year 2017 for disclosure the next fiscal year.
Key Survey Findings
- Forty-five percent of respondents were at least “somewhat concerned” with understanding the steps needed to make the disclosure.
- Forty-six percent were at least “somewhat concerned” with obtaining and collating the needed employee data in connection with the calculation of the CEO pay ratio.
- Forty-seven percent were at least “somewhat concerned” with what to disclose in the various filings.
- Fifty-one percent indicated that they were at least “somewhat concerned” with determining the best methodologies to use in data collection and analysis.
In addition, 53 percent of respondents were at least “somewhat concerned” about ensuring that the ratio reflect reality and about public perception.
“Many executives are troubled by the CEO Pay Ratio mandate – primarily because it is not a logical indicator of pay within an organization,” said Irv Becker, North American Leader for Korn Ferry Hay Group's Executive Pay and Governance Practice. “For example a retail organization will have a much greater disparity due to the number of minimum wage earners, and a professional services company will have a much lower disparity. Not surprisingly, organizational leaders are worried about the optics – internally and externally – when they disclose this number, which may be quite misleading.”
Due to the complexity of the filings, a majority (58 percent) of respondents said that they were “somewhat likely” to seek external support in connection with the required disclosure and related obligations. When combined with the 11 percent that were “very likely” to use outside advisors, it appears that most companies (69 percent) want some guidance in determining and disclosing their CEO pay ratio.
About the Study
Leaders from nearly 150 publicly traded companies took part in Korn Ferry Hay Group’s CEO Pay Ratio survey during May and June 2016. Twenty-eight percent of respondents were CEOs, 35 percent were from the Human Resources function, 18 percent were board members and the rest were from other internal functions related to disclosure.
The full study can be found here.
About Korn Ferry
Korn Ferry is the preeminent global people and organizational advisory firm. We help leaders, organizations, and societies succeed by releasing the full power and potential of people. Our nearly 7,000 colleagues deliver services through our Executive Search, Hay Group and Futurestep divisions.