Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Rules and Regulations 44917 

1Pay Ratio Disclosure, Release No. 33–9877 (Aug. 

5, 2015) [80 FR 50103 (Aug. 18, 2015)] (‘‘Pay Ratio 

Release’’). 

2 15 U.S.C. 78n(i). 

3Public Law 111–203, sec. 953(b), 124 Stat. 1376, 

1904 (2010), as amended by Public Law 112–106, 

sec. 102(a)(3), 126 Stat. 306, 309 (2012). 

4Pay Ratio Release, supra note 1, at 50106. 

5 Id. at 50107. 

6See, e.g., letters from Business Roundtable (Mar. 

23, 2017) (‘‘BRT’’), Davis Polk & Wardwell LLP 

(Mar. 23, 2017) (‘‘Davis Polk’’), Financial Services 

Roundtable (Mar. 23, 2017) (‘‘FSR’’), The Insurance 

Coalition (Mar. 23, 2017) (‘‘Insurance Coalition’’), 

National Association of Manufacturers (Mar. 23, 

2017) (‘‘NAM’’), and Society for Corporate 

Governance (Mar. 24, 2017) (‘‘SCG’’) available at 

https://www.sec.gov/comments/pay-ratiostatement/payratiostatement.htm. 

7See Division of Corporation Finance Guidance 

on Calculation of Pay Ratio Disclosure, September 

21, 2017, available at https://www.sec.gov/rules/ 

interp/2017/33-10415.pdf. 

8See Pay Ratio Release, supra note 1, at 50135— 

50138. 

9See, e.g., Instruction 2 and Instruction 4 to Item 

402(u) of Regulation S–K (17 CFR 229.402(u)). 

10See Instruction 4 to Item 402(u) of Regulation 

S–K. 

11 Id. 

12 Id. 

13See, e.g., letters from BRT, Davis Polk, and 

NAM. 

14 17 CFR 229.402(u)(1). 

advance by a Notice to Airmen. The effective 

date and time will thereafter be continuously 

published in the Chart Supplement. 

Paragraph 6005 Class E Airspace Areas 

Extending Upward From 700 Feet or More 

Above the Surface of the Earth. 

* * * * * 

ASW TX E5 Midland, TX [Amended] 

Midland International Air and Space Port 

Airport, TX 

(Lat. 31°56′33′′ N., long. 102°12′07′′ W.) 

That airspace extending upward from 700 

feet above the surface within a 7.1-mile 

radius of Midland International Air and 

Space Port Airport. 

ASW TX E5 Midland, TX [New] 

Midland Airpark, TX 

(Lat. 32°02′12′′ N., long. 102°06′05′′ W.) 

That airspace extending upward from 700 

feet above the surface within a 6.6-mile 

radius of Midland Airpark. 

* * * * * 

ASW TX E5 Odessa, TX [New] 

Odessa Airport-Schlemeyer Field, TX 

(Lat. 31°55′17′′ N., long. 102°23′14′′ W.) 

That airspace extending upward from 700 

feet above the surface within a 6.6-mile 

radius of Odessa Airport-Schlemeyer Field 

Airport. 

Issued in Fort Worth, Texas, on September 

19, 2017. 

Walter Tweedy, 

Acting Manager, Operations Support Group, 

ATO Central Service Center. 

[FR Doc. 2017–20592 Filed 9–26–17; 8:45 am] 

BILLING CODE 4910–13–P 

SECURITIES AND EXCHANGE 

COMMISSION 

17 CFR Parts 229 and 249 

[Release No. 33–10415; 34–81673; File No. 

S7–07–13] 

Commission Guidance on Pay Ratio 

Disclosure 

AGENCY: Securities and Exchange 

Commission. 

ACTION: Interpretation. 

SUMMARY: The Securities and Exchange 

Commission is publishing interpretive 

guidance to assist registrants in 

preparation of their pay ratio 

disclosures required by Item 402(u) of 

Regulation S–K. 

DATES: Effective Date: September 27, 

2017. 

FOR FURTHER INFORMATION CONTACT: John 

Fieldsend, Special Counsel, or Steven G. 

Hearne, Senior Special Counsel, at (202) 

551–3430, in the Division of 

Corporation Finance; 100 F Street NE., 

Washington, DC 20549. 

SUPPLEMENTARY INFORMATION: 

I. Introduction 

In 2015, the Commission adopted a 

rule 1 to implement the pay ratio 

disclosure requirement 2 mandated by 

Section 953(b) of the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act.3 In doing so, the Commission 

stated its belief that, in order for the 

data points provided by the rule to be 

of use to investors, the pay ratio rule 

‘‘should be designed to allow 

shareholders to better understand and 

assess a particular registrant’s 

compensation practices and pay ratio 

disclosures rather than to facilitate a 

comparison of this information from one 

registrant to another.’’ 4 Consistent with 

this view, the Commission stated that it 

sought to provide flexibility in a manner 

that would ‘‘reduce costs and burdens 

for registrants while preserving what we 

perceive to be the purpose and intended 

benefits’’ of the statutorily mandated 

disclosure.5 Under the final rule, 

registrants must provide pay ratio 

disclosure for the first fiscal year 

beginning on or after January 1, 2017, 

which means that registrants will begin 

making pay ratio disclosures in early 

2018. 

In light of the approaching 

compliance date and concerns raised 

about the implementation of the 

disclosure requirement,6 this release 

provides additional guidance to assist 

registrants in their compliance efforts. 

In addition, the Commission staff is 

publishing guidance about the use of 

statistical sampling to assist registrants 

in determining their median employee 

for purposes of the pay ratio disclosure.7

II. Commission Guidance 

A. Use of Reasonable Estimates, 

Assumptions, and Methodologies and 

Statistical Sampling 

The pay ratio rule affords significant 

flexibility to registrants in determining 

appropriate methodologies to identify 

the median employee and calculating 

the median employee’s annual total 

compensation.8 Required disclosure 

may be based on a registrant’s 

reasonable belief; use of reasonable 

estimates, assumptions, and 

methodologies; and reasonable efforts to 

prepare the disclosures.9 Specifically, 

the rule permits registrants to use 

reasonable estimates to identify the 

median employee, including by using 

statistical sampling and a consistently 

applied compensation measure (such as 

payroll or tax records).10 The rule also 

allows registrants to use reasonable 

estimates in calculating the annual total 

compensation or any elements of annual 

total compensation for employees.11

The rule further provides that if a 

registrant changes its methodology or its 

material assumptions, adjustments, or 

estimates, and the effects are significant, 

the registrant must briefly describe the 

change and the reasons for the change.12

In light of the use of estimates, 

assumptions, adjustments, and 

statistical sampling permitted by the 

rule, pay ratio disclosures may involve 

a degree of imprecision. This has led 

some commenters to express concerns 

about compliance uncertainty and 

potential liability.13 In our view, if a 

registrant uses reasonable estimates, 

assumptions or methodologies, the pay 

ratio and related disclosure that results 

from such use would not provide the 

basis for Commission enforcement 

action unless the disclosure was made 

or reaffirmed without a reasonable basis 

or was provided other than in good 

faith. 

B. Use of Internal Records 

Item 402(u) requires a registrant to 

disclose the median of the annual total 

compensation of all its employees 

excluding its principal executive 

officer.14 We are providing guidance as 

to the use of existing internal records, 

such as tax or payroll records, to make 

this determination. 

1. Non-U.S. Employees 

The final rule defines the term 

‘‘employee’’ to include U.S. employees 

and employees located in a jurisdiction 

outside the United States (‘‘non-U.S. 


asabaliauskas on DSKBBXCHB2PROD with RULES
44918 Federal Register / Vol. 82, No. 186 / Wednesday, September 27, 2017 / Rules and Regulations 

15See Pay Ratio Release, supra note 1, at 50122— 

50133. 

16 17 CFR 229.402(u)(4)(ii). See also Pay Ratio 

Release, supra note 1, at 50124–50125 (noting that 

registrants using the de minimis exemption are 

required to provide certain disclosures). 

17See, e.g., Instruction 1 to Item 402(u) of 

Regulation S–K (17 CFR 229.402(u)) and Pay Ratio 

Release, supra note 1, at 50119—50120 (indicating 

that determination of the median employee may be 

made on any date within the last three months of 

the registrant’s last completed fiscal year). 

18See Pay Ratio Release, supra note 1, at 50137– 

50138 (providing that the registrant must disclose 

the substitution as part of its brief description of the 

methodology it used to identify the median 

employee). 

19 17 CFR 229.402(u)(3). 

20 Id. 

21See Pay Ratio Release, supra note 1, at Section 

50165–50166. 

22See, e.g., letters from Davis Polk, FSR, SCG, and 

Insurance Coalition. 

23See, e.g., letters from Davis Polk and Insurance 

Coalition. 

24See, e.g., Publication 15–A Employer’s 

Supplemental Tax Guide (2017). 

25 17 CFR 229.402(u)(3). 

26Because we believe most widely recognized 

tests likely will consider how compensation is 

determined as a factor in identifying a registrant’s 

employees, we believe these tests generally would 

provide a reasonable means of complying with Item 

402(u). See, e.g., note 24. The description of the 

methodology required by Instruction 4 of Item 

402(u) requires a registrant to include an 

explanation of any material assumptions and 

adjustments used. 

employees’’). In the Pay Ratio Release, 

we acknowledged that the inclusion of 

non-U.S. employees would raise 

compliance costs for multinational 

companies.15 To address concerns about 

compliance costs, the rule permits 

registrants to exempt non-U.S. 

employees where these employees 

account for 5% or less of the registrant’s 

total U.S. and non-U.S. employees, with 

certain limitations.16 We are clarifying 

that a registrant may use appropriate 

existing internal records, such as tax or 

payroll records, in determining whether 

the 5% de minimis exemption is 

available.17

2. Median Employee 

We also believe that the use of 

existing internal records may, in many 

circumstances, be appropriate in 

identifying a registrant’s median 

employee. Instruction 4 to Item 402(u) 

permits a registrant to identify its 

median employee using a consistently 

applied compensation measure, such as 

information derived from the 

registrant’s tax or payroll records. We 

are clarifying that a registrant may use 

internal records that reasonably reflect 

annual compensation to identify the 

median employee, even if those records 

do not include every element of 

compensation, such as equity awards 

widely distributed to employees. 

We recognize that, when calculating 

total compensation in accordance with 

Item 402(c)(2)(x) for the identified 

median employee that the registrant 

identified using a consistently applied 

compensation measure based on 

internal records, the registrant may 

determine that there are anomalous 

characteristics of the identified median 

employee’s compensation that have a 

significant higher or lower impact on 

the pay ratio. The Commission 

discussed this issue in the adopting 

release specifically and noted that, in 

such a circumstance, instead of 

concluding that the consistently applied 

compensation measure the registrant 

used was unsuitable to identify its 

median employee, the registrant may 

substitute another employee with 

substantially similar compensation to 

the original identified median employee 

based on the compensation measure it 

used to select the median employee.18

C. Independent Contractors 

For purposes of Item 402(u), the term 

‘‘employee’’ or ‘‘employee of the 

registrant’’ is defined as ‘‘an individual 

employed by the registrant or any of its 

consolidated subsidiaries.’’ 19 Item 

402(u)(3) excludes from the definition 

those workers who are employed, and 

whose compensation is determined, by 

an unaffiliated third party but who 

provide services to the registrant or its 

consolidated subsidiaries as 

independent contractors or ‘‘leased’’ 

workers.20 In the Pay Ratio Release, the 

Commission indicated that excluding 

these workers is appropriate, because 

registrants generally do not control the 

level of compensation that these 

workers are paid.21

Some commenters have expressed 

concerns about the application of the 

rule’s definition of ‘‘employee.’’ 22

Because registrants already make 

determinations as to whether a worker 

is an employee or independent 

contractor in other legal and regulatory 

contexts, such as for employment law or 

tax purposes, some commenters 

suggested that the Commission should 

allow registrants to use widely 

recognized tests to determine who is an 

‘‘employee’’ for purposes of the rule.23

Such a test might, for example, be 

drawn from guidance published by the 

Internal Revenue Service with respect to 

independent contractors.24

Item 402(u)(3) makes clear that an 

‘‘employee’’ is an individual employed 

by the registrant.25 The provision in 

Item 402(u)(3) indicating that the 

definition of ‘‘employee’’ does not 

include workers who are employed, and 

whose compensation is determined, by 

an unaffiliated third party describes one 

category of workers that is expressly 

excluded from the definition of 

‘‘employee’’ under the rule. The 

provision was not intended to serve as 

an exclusive basis for determining 

whether a worker is an employee of the 

registrant. Accordingly, we believe it 

would be consistent with Item 402(u) 

for a registrant to apply a widely 

recognized test under another area of 

law that the registrant otherwise uses to 

determine whether its workers are 

employees.26

By the Commission. 

Dated: September 21, 2017. 

Brent J. Fields, 

Secretary. 

[FR Doc. 2017–20632 Filed 9–26–17; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF ENERGY 

Federal Energy Regulatory 

Commission 

18 CFR Part 40 

[Docket No. RM16–20–000; Order No. 837] 

Remedial Action Schemes Reliability 

Standard 

AGENCY: Federal Energy Regulatory 

Commission, DOE. 

ACTION: Final rule. 

SUMMARY: The Federal Energy 

Regulatory Commission approves 

Reliability Standard PRC–012–2 

(Remedial Action Schemes) submitted 

by the North American Electric 

Reliability Corporation. The purpose of 

Reliability Standard PRC–012–2 is to 

ensure that remedial action schemes do 

not introduce unintentional or 

unacceptable reliability risks to the bulk 

electric system. 

DATES: This rule will become effective 

November 27, 2017. 

FOR FURTHER INFORMATION CONTACT: 

Syed Ahmad (Technical Information), 

Office of Electric Reliability, Division 

of Reliability Standards and Security, 

888 First Street NE., Washington, DC 

20426, Telephone: (202) 502–8718, 

Syed.Ahmad@ferc.gov. 

Alan Rukin (Legal Information), Office 

of the General Counsel, Federal 

Energy Regulatory Commission, 888 

First Street NE., Washington, DC 

20426, Telephone: (202) 502–8502, 

Alan.Rukin@ferc.gov. 

SUPPLEMENTARY INFORMATION: 


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