SEC Proposes CEO Pay Ratio Rule

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The Securities and Exchange Commission (SEC) proposed a rule in 2013, required under the Dodd-Frank Act, which would require companies to disclose a pay ratio of their chief executive officer's compensation to the median total compensation of all of its employees (for the last fiscal year).

The SEC would not prescribe a specific method for organizations to use when calculating a pay ratio, and companies would have the flexibility to determine the median annual total compensation among their employees and make reasonable estimates when calculating elements of and employees' total compensation.  In addition, in the proposed rule, "employee" is defined as any employee who is full-time, part-time, temporary, seasonal, and non-U.S; employed by the company or any of its subsidiaries; and employed as of the last day of the company's prior fiscal year.

Companies would be required to disclose the method they used to identify the median and total compensation as well as any amounts that are estimated.

Source: Securities and Exchange Commission (2013). SEC Proposes Rules for Pay Ratio Disclosure

Northeast Ohio CEO’s Total Compensation Among Top In Nation

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According to the results of the 2012 National Executive Compensation Survey, CEOs here in Northeast Ohio receive the fourth highest total compensation package as compared to 20 other geographic regions reported in the survey. Coming in at $308,500, Northeast Ohio CEOs rounds out a strong showing for the Midwest, with the Columbus/Cincinnati breakout and Detroit Metro area in the first and third spots respectively in terms of total compensation for CEOs in their regions.

Base salary accounts for approximately 75% of the total compensation package in Northeast Ohio, a rate which suggests that area CEO’s receive a larger portion of their compensation in the form of variable pay than in the vast majority of other regions reported in the national sample. By focusing on variable pay, such as bonuses and other short term incentives, employers are able to more closely tie executive pay to performance. Establishing a clear connection between the value a CEO adds to the company and the compensation they receive in return is a critical step forward and a growing trend in executive pay, both for the sake of internal equity as well as to ensure compliance with external regulations.

Of the 47 executive positions survey across the national sample, increases to base pay remain stable- right at 3% for 2012. When calculated only including those organizations who projected increases, this number is a slightly higher figure, but one that continues to hover around the 4% mark for these executive type positions.

Additional Resources

2012 EAA National Executive Compensation Survey
The 2012 EAA National Executive Compensation Survey, published in May of 2012, reports compensation, benefits, and pay practice data provided by 2,235 participating organizations throughout the country and 108 organizations in Northeast Ohio for 11,948 executives in 47 positions. Breakouts of data are included across five variables: sales volume, organizational size, industry, organization type, and geographic location – including Northeast Ohio. Download the survey here.

2012 ERC Performance Management Practices Survey
This survey collects information from Northeast Ohio organizations on performance management practices in the workplace, specifically related to performance reviews, performance criteria, role of the supervisor in managing performance and other performance management issues. Click here to view the survey.