In an apparent regulatory follow-up to norms already prescribed in India, the US has proposed a new rule requiring listed companies to disclose the ratio of their CEO pay and median staff salary.
While the new rule was proposed by the US markets regulator SEC last night, an exactly similar provision for listed companies in India is already present in the new Companies Act, 2013, which became a law last month.
Even when the Companies Bill was yet to be signed into a law and was at discussion stage, the capital markets regulator Sebi took a proactive step in 2013 by proposing to incorporate such a provision in its regulations for listed companies.
The Securities and Exchange Commission (SEC), on Wednesday, voted in favour of a new rule that requires public companies to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees.
The proposed rule, under the Dodd-Frank Act, would not prescribe a specific methodology for companies to use in calculating a 'pay ratio'.
"Instead, companies would have the flexibility to determine the median annual total compensation of its employees in a way that best suits its particular circumstances," SEC said.
The issue of executive compensation, especially to senior management personnel, came under intense scrutiny in the wake of the global financial meltdown in 2008. At that time, there were criticism from various quarters that a link between excessive risk taking ways and exorbitant pay packets also fuelled the crisis.
In January this year, capital markets regulator Securities and Exchange Board of India (Sebi) had proposed a slew of measures, including alignment of CEO pay with performance of the company, as part of corporate governance norms.
"... on an average, the remuneration paid to CEOs in certain Indian companies are far higher than the remuneration received by their foreign counterparts and there is no justification available to that effect," Sebi had said in a discussion paper.
Besides, the regulator had proposed mandatory disclosures of ratio of remuneration paid to each of their directors and the median staff salary, by listed companies.
Such a disclosure is also part of the new