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What’s the big lesson from the SEC rule on CEO pay disclosure?

| Aug 19, 2015 | Business Formation & Planning |

The Securities and Exchange Commission sparked big headlines earlier this month when it announced a new rule requiring publicly traded companies to reveal what the CEO makes compared to employees making the company’s median salary. That in turn has sparked a lot of heated debate about what the fallout of the rule is likely to be. We’re sure there are many in North Carolina who wonder the same thing.

If reaction from a cross-section of media analysts is correct, the chances are that there may be very little fallout to worry about. There may disclosures that prompt raised eyebrows among some people. The information shared might also generate even more debate about what many already complain is a major pay inequality problem. But there is generally agreement that not much else will happen.

That’s because the rule only applies to publicly traded companies. Most businesses aren’t publicly traded and therefore won’t be affected by the rule at all. And at least one observer offers that companies that are affected can mitigate things by adopting a strategy that involves supplying even more information than the rule calls for.

Under this theory, when reporting the single pay ratio the SEC rule requires a company should also include broader information that provides audiences with the full and proper context of the company’s compensation structures. This may be the big lesson.

The regulatory environment is something that anyone looking to start and maintain a business needs to be aware of. That’s as true in North Carolina as any in any state where a business opportunity is being considered. As the SEC rule reflects, the environment can change and business compliance issues can be a concern. Effectively addressing such concerns is best done by working with experienced legal counsel.

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