Market Trends 2023/24: Pay Ratio Disclosure

This market trends practice note provides a legal analysis of the evolving landscape surrounding the U.S. Securities and Exchange Commission’s (SEC) pay ratio disclosure requirements under Item 402(u) of Regulation S-K, as mandated by Section 953(b) of the Dodd-Frank Act. It examines how public companies have interpreted and operationalized the rule, particularly in the 2023 and 2024 proxy seasons. The discussion includes the legal framework for identifying the median employee, permissible methodologies for calculating total compensation, and the conditions under which companies may reuse or substitute the median employee across fiscal years. The document also addresses the scope of exemptions—such as the de minimis and data privacy exceptions—for excluding non-U.S. employees and highlights the limited but legally permissible use of supplemental disclosures and alternative ratios. Through a series of real-world disclosure excerpts, the document illustrates how issuers have navigated compliance obligations, balanced investor expectations, and mitigated reputational risk associated with high CEO pay ratios. It further underscores the legal discretion afforded to issuers in crafting disclosures that are both compliant and contextually informative, while cautioning that comparability across companies remains inherently limited due to the flexibility embedded in the rule’s implementation.

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