by not being required to comply with the proposed requirements.
    We also considered whether to expand the coverage of the proposed
requirements to registrants, such as foreign private issuers and MJDS
filers, that are not currently required to provide Item 402 disclosure.
Foreign private issuers, for example, provide a modified version of
executive compensation disclosure under Form 20-F, while MJDS filers
follow the executive compensation requirements arising under Canadian
law. Although quantifying the costs to these registrants of calculating
PEO compensation under Item 402(c)(2)(x) or of complying with the
requirements prescribed by Section 953(b) is not currently possible, we
assume that such costs could be significant. Based on a review of EDGAR
filings for calendar year 2011, we estimate that there are
approximately 750 foreign private issuers filing on Form 20-F and 144
MJDS filers that would benefit from the exclusion from the proposed
requirements.
c. Employees Included in the Identification of the Median
    Section 953(b) expressly requires disclosure of the median of the
annual total compensation of ``all employees.'' Consistent with that
mandate, the proposed requirements state that ``employee'' or
``employee of the registrant'' includes any full-time, part-time,
seasonal or temporary worker employed by the registrant or any of its
subsidiaries (including officers other than the PEO).\197\ Therefore,
under the proposed requirements, ``all employees'' covers all such
individuals. In contrast, workers who are not employed by the
registrant or its subsidiaries, such as independent contractors or
``leased'' workers or other temporary workers who are employed by a
third party, would not be covered.
---------------------------------------------------------------------------

    \197\ Rule 405 under the Securities Act states that the term
``employee'' does not include a director, trustee or officer. This
parenthetical in the proposed rules is intended to clarify that
officers, as that term is defined under Rule 405, are not excluded
from the definition of employee for purposes of the proposed pay
ratio disclosure requirements.
---------------------------------------------------------------------------

    We considered whether Section 953(b) is intended to cover employees
of the registrant alone, or also cover employees of the registrant's
subsidiaries. By directing the Commission to amend Item 402, we believe
that Section 953(b) is intended to cover employees on an enterprise-
wide basis, including both the registrant and its subsidiaries, which
is the same approach as that taken for other Item 402 information. This
interpretation could raise compliance costs for registrants that are
holding companies that have a significant portion of their workers
employed by operating subsidiaries rather than by the holding company.
We also note that allowing a holding company registrant to exclude
employees from the identification of the median solely on the basis of
its corporate structure could affect the potential meaningfulness of
the disclosure. Further, allowing holding company registrants to
exclude employees could provide a potential competitive advantage over
non-holding company registrants due to lower compliance costs
associated with having fewer workers covered by the rule.
    Because Section 953(b) directs the Commission to amend Item 402, we
believe it is appropriate to apply the same definition of subsidiary
that is used for other disclosure under Item 402. We acknowledge that
compliance costs for some registrants potentially could be further
reduced if we limited the application of the proposed rules to
employees of wholly-owned subsidiaries, or some other definition of
subsidiary. We request comment on whether using a different definition
of subsidiary would reduce costs for registrants, or whether it would
raise costs by causing registrants to make a new, separate
determination of which entities are subsidiaries for purposes of pay
ratio requirements. Comment is also requested on whether a different
definition of subsidiary would affect any benefits expected to be
derived from the proposed rule. Because registrants already make the
determination of which entities are subsidiaries for purposes of Rule
405 and Rule 12b-2 in connection with other required disclosure, we
believe that using the same set of entities for purposes of the
proposed requirements would simplify compliance for most registrants
and make the information easier for users of the information to
understand.
    We recognize that it is possible that a registrant could alter its
corporate structure or its employment arrangements in order to reduce
the number of employees covered by the rule, and, therefore, reduce its
costs of compliance or to alter the reported ratio to achieve a
particular objective with the ratio disclosure. For example, a
registrant could choose to use only independent contractors or
``leased'' workers instead of hiring its own employees. Or a registrant
could choose to outsource or franchise some aspects of its business,
either to lower compliance costs by having fewer employees subject to
the proposed pay ratio requirements or in an effort to ``improve'' its
pay ratio. One commenter has questioned the likelihood of this
behavior.\198\ To the extent that there is an incentive for companies
to change their business model to adjust their pay ratio, such an
incentive would arise wherever a prescriptive standard is used.
Therefore, we have sought to avoid adding prescriptive standards that
are not mandated by the Dodd-Frank Act.
---------------------------------------------------------------------------

    \198\ See AFL-CIO I (``It is simply not credible to suggest that
companies will dramatically restructure their operations to
manipulate this [pay ratio] data. Moreover, such a business decision
would be improper under state corporate laws that require boards of
directors to put the interests of shareholders before the interests
of company CEOs who may be potentially embarrassed by their
companies' Section 953(b) disclosures.'').
---------------------------------------------------------------------------

    As discussed in Section II.C.2.a., we acknowledge the concerns of
commenters that the inclusion of non-U.S. employees raises compliance
costs for multinational companies and introduces cross-border
compliance issues. We also recognize that these companies could suffer
competitively if they compete with companies that have lower costs of
compliance, due to, for example, fewer employees, fewer global
locations, or data systems that are more centralized. We have weighed
these considerations and are proposing that the requirement cover all
employees without carve-outs for specific categories of employees.
    Although we believe that the inclusion of non-U.S. employees in the
calculation of the median is consistent with the statute, we considered
ways to address the costs of compliance that commenters attribute to
the provision's coverage of a registrant's global workforce. In
particular, we considered the concerns of commenters that data privacy
regulations in various jurisdictions could impact the ability of
registrants to gather and verify the data needed to identify the
median. We believe that the proposed flexibility

afforded to registrants in selecting a methodology to identify the
median, such as statistical sampling, the use of a consistently applied
compensation measure to identify a median employee, as well as the
ability of registrants to use reasonable estimates in the calculation
of total compensation of employees other than the PEO and the
identification of the median, could enable registrants to better manage
the costs and burdens arising from local data privacy regulations. We
specifically requested comment on these issues in order to gain more
information about appropriate ways to address these potential issues in
a way that is consistent with Section 953(b) and the costs and benefits
of any alternatives.
    Section 953(b) does not prescribe a particular calculation date for
the determination of who should be treated as an employee for purposes
of the rule. We believe that a bright line calculation date for
determining who is an employee would ease compliance for registrants by
eliminating the need to monitor changing workforce composition during
the year, while still providing a recent snapshot of the entire
workforce. Accordingly, the proposed requirement includes a calculation
date for determining who is an employee for purposes of identifying the
median by defining ``employee'' as an individual employed as of the
last day of the registrant's last completed fiscal year.\199\ This
calculation date would be consistent with the one used for determining
the named executive officers under current Item 402 requirements.
---------------------------------------------------------------------------

    \199\ Proposed Item 402(u)(4).
---------------------------------------------------------------------------

    We believe that the potential benefits of the disclosure mandated
by Section 953(b) would not be significantly diminished by covering
only individuals employed at year-end, rather than covering every
individual employed during the year. Although we believe that this
approach could help contain compliance costs for registrants, by not
requiring registrants to monitor the composition of the workforce
during the year, we note that it could have other economic effects. For
example, this approach would not capture seasonal or temporary
employees that are not employed at year-end. In the case of a
registrant with a significant amount of such workers, the exclusion of
such workers from the median calculation could reduce the potential
benefits of the rule, as a median so calculated may not fully reflect
the workforce required to run the registrant's business. It could also
cause the proposed requirements to be costlier for, and thereby have an
anti-competitive impact on, registrants whose temporary or seasonal
workers are employed at year-end as opposed to at other times during
the year. Finally, it is possible that registrants could try to
structure their employment arrangements to reduce the number of workers
employed on the calculation date or to alter the reported ratio to
achieve a particular objective with the ratio disclosure, although it
is not known whether registrants will do so. Currently, it is not
possible to quantify whether any such restructuring of employee
arrangements would have a material impact on a registrant's reported
median annual total compensation. Comment is requested on this issue.
    The proposed requirements also include an instruction that permits
a registrant to annualize the compensation for all permanent employees
(other than those in temporary or seasonal positions) who were employed
for less than the full fiscal year. We did not propose to require
registrants to perform this type of adjustment, however, because we do
not believe that the costs of requiring companies to make an extra
calculation would be justified.
    We believe that this annualizing adjustment would not significantly
diminish the potential usefulness of the disclosure mandated by Section
953(b), particularly because the ratio uses median employee
compensation, not average employee compensation. For example, we would
not expect that annualizing the salary of a permanent new hire would
impact the potential ability of an investor to use the pay ratio
disclosure as an indicator of employee morale or to gain an
understanding of a registrant's investment in human capital, which some
commenters have identified as a benefit of the disclosure under Section
953(b).\200\ For annualizing adjustments to have any significant impact
on the reported pay ratio, both the fraction of permanent new hires to
all employees of the registrant and their annualized compensation would
have to be relatively large. We do not believe those factors are
typical of employment arrangements of many registrants. We also note
that some of the commenters that support Section 953(b) disclosure were
also supportive of allowing annualizing adjustments.\201\
---------------------------------------------------------------------------

    \200\ See AFL-CIO I and letters from Calvert Investment
Management; CtW Investment Group; Group of International Investors;
Americans for Financial Reform; Drucker Institute; Institute for
Policy Studies; Social Investment Forum; Trillium Asset Management;
and UAW Retiree Medical Benefits Trust.
    \201\ See AFL-CIO II and letters from Social Investment Forum
and Trillium Asset Management.
---------------------------------------------------------------------------

    By permitting, but not requiring, registrants to annualize
compensation for these employees, the comparability of disclosure
across companies could be reduced. We do not believe that precise
comparability or conformity of disclosure from registrant to registrant
is necessarily achievable due to the variety of factors that could
cause the ratio to differ, and, accordingly, we do not believe that the
costs associated with promoting precise comparability would be
justified. We assume that comparability of disclosure would be promoted
at a lower cost to registrants by proscribing all annualizing
adjustments, rather than by prescribing rules for making such
adjustments for employees who were employed for less than the full
year.
d. Identifying the Median
    Section 953(b) does not expressly set forth a methodology that must
be used to identify the median, nor does it mandate that the Commission
must do so in its rules. In order to allow the greatest degree of
flexibility while maintaining consistency with the statutory provision,
the proposed requirements do not specify any required calculation
methodologies for identifying the median.\202\
---------------------------------------------------------------------------

    \202\ One of the difficulties in identifying a median arises
from the situation that a registrant with multiple business units,
geographical operations, or subsidiaries maintains payroll data at
each business unit or subsidiary. Calculating the average for the
consolidated entity only requires each subsidiary or business unit
to convey information on the total (or average) compensation and the
number of its employees to its parent entity, whereas identifying
the median requires transferring the entire set of compensation data
from each subsidiary to the parent entity. We recognized that
registrants with multiple operations are likely to maintain payroll
data at the business unit or subsidiary level, and thus allowing
them to use the average employee compensation could reduce their
compliance costs. Nevertheless, we believe that Section 953(b) is
clear in requiring the median rather than the average.
---------------------------------------------------------------------------

    Several commenters recommended allowing companies to use total
direct compensation (such as annual salary, hourly wages and any other
performance-based pay) or cash compensation to first identify a median
employee.\203\ We agree that the costs of compliance could be reduced
if registrants were permitted to identify the median of a less complex,
more readily available figure, such as salary and wages, rather than
total compensation as determined in

accordance with Item 402(c)(2)(x). This approach could also help reduce
costs for registrants that are not able to reduce costs using
statistical sampling techniques. We are proposing to permit registrants
to use any consistently applied compensation measure to identify the
median employee and then calculate that median employee's annual total
compensation in accordance with Item 402(c)(2)(x). For purposes of
estimating the median employee, registrants may use the same annual
period that is used in the payroll or tax records from which the
compensation amounts are derived. We believe that registrants would be
in the best position to select a compensation measure that is
appropriate to their own facts and circumstances and that a
consistently applied compensation measure would result in a reasonable
estimate of a median employee. After identifying the median employee,
registrants would be required to calculate that employee's annual total
compensation in accordance with Item 402(c)(2)(x) for the last
completed fiscal year, which would provide comparability with the
calculation of the PEO's total compensation without imposing
significant costs.
---------------------------------------------------------------------------

    \203\ See AFL-CIO II and letters from ABA; American Benefits
Council; Americans for Financial Reform; CtW Investment Group;
Protective Life Corporation; RILA; and SCSGP.
---------------------------------------------------------------------------

    Allowing registrants to choose this alternative approach is likely
to reduce registrants' compliance costs significantly, compared to
requiring registrants to calculate total compensation in accordance
with Item 402(c)(2)(x) for all employees and then identify the median.
Registrants that choose this alternative approach would be able to
identify a median employee from employee compensation data that they
may already track or record or that may be less expensive for them to
acquire than acquiring and computing all of the Item 402(c)(2)(x)
compensation information for each employee. We acknowledge, however,
that some registrants would still incur costs if they have to combine
or sample from separately maintained payroll systems across segments
and/or geographic locations. In addition, the proposal specifically
permits registrants, in identifying a median employee, to use
compensation amounts reported in payroll or tax records. This approach
would reduce uncertainty for registrants and may also be less costly to
them, compared to other alternatives that may use various sources of
compensation data to generate reasonable estimates of total
compensation in accordance with Item 402(c)(2)(x).
    We are proposing this flexible approach because we believe that the
appropriate and most cost effective methodology would necessarily
depend on a registrant's particular facts and circumstances, including,
among others, such variables as size and nature of the workforce,
complexity of the organization, the stratification of pay levels across
the workforce, the types of compensation the employees receive, the
extent that different currencies are involved, the number of tax and
accounting regimes involved, the number of payroll systems the
registrant has and the degree of difficulty involved in integrating
payroll systems to readily compile total compensation information for
all employees. We believe that these are likely the same factors that
would cause substantial variation in the costs of compliance. By not
prescribing specific methodologies that must be used, the proposed
requirements would allow registrants to choose a method to identify the
median that is appropriate to the size, structure and compensation
practices of their own businesses, including permitting a registrant to
identify the median employee using any consistently applied
compensation measure. In addition, this flexibility could enable
registrants to manage compliance costs more effectively than a more
prescriptive approach would allow. We also believe that, by allowing
registrants to minimize direct compliance costs, a flexible approach
could mitigate, to some extent, any potential negative effects of the
mandated requirements on competition. We recognize, however, that a
flexible approach could increase uncertainty for registrants that
prefer more specificity on how to comply with the proposed rules,
particularly for registrants that do not use statistical analysis in
the ordinary course of managing their businesses. In light of this
potential uncertainty, we have provided clarity to registrants that the
use of statistical sampling or other reasonable estimates in
identifying the median would be permitted, as well as identifying the
median employee based on any consistently applied compensation measure.
    The reduction in compliance costs by using statistical sampling or
other reasonable estimates in determining median would ultimately
depend on a registrant's particular facts and circumstances. For
example, in the following figure and tables, we show that the variance
of underlying wage distributions can materially affect the appropriate
sample size for statistical sampling.\204\ Industries characterized by
the Bureau of Labor Statistics as having low wage variances, such as
Motor Vehicle Manufacturing, Electric Power Generation, Coal Mining,
have estimated minimum appropriate sample sizes for an accurate median
estimate of less than one hundred. In contrast, industries
characterized by the high wage variances, such as Offices of
Physicians, Spectator Sports, and Motion Picture and Video industries,
have estimated minimum appropriate sample sizes of more than 1,000
employees. Figure 2 shows the distribution of estimated minimum
appropriate sample sizes for each of the 290 4-digit NAICS industries
tracked by the BLS.
---------------------------------------------------------------------------

    \204\ The analysis uses mean and median wage estimates from the
Bureau of Labor Statistics (BLS) at the 4-digit NAICS industry level
(290 industries) and assumes a lognormal wage distribution, a 95%
confidence interval with 0.5% margin of error in the estimate of the
median of the logarithm of wage. The lognormal wage distribution
assumption is supported by the following studies: F. Clementi, and
M. Gallegati, Pareto's law of income distribution: evidence for
Germany, the United Kingdom, and the United States. Econophysics of
Wealth Distributions, New Economic Window. 3-14 (2005), and J.
L[oacute]pez and L. Serv[eacute]n, A Normal Relationship? Poverty,
Growth and Inequality. World Bank Policy Research Working Paper 3814
(2006). Also, see M. Pinkovskiy and X. Sala-i-Martin, Parametric
Estimations of the World Distribution of Income, NBER Working Paper
15433, (2009). This analysis also assumes that when the sampling is
implemented, the sampling method would be a true random sampling,
i.e., it would not be biased by region, occupation, rank, or other
factor.

                 Table 2--The Industries With the Largest and Smallest Appropriate Sample Sizes
----------------------------------------------------------------------------------------------------------------
                                                                                Median wage     Appropriate
                            Industry                              Mean wage  ($)        ($)         sample size
----------------------------------------------------------------------------------------------------------------
10 industries with smallest variance in wage distribution:
    Electric Power Generation, Transmission and Distribution....          67,950          65,790              81
    Motor Vehicle Manufacturing.................................          56,160          54,430              81
    Coal Mining.................................................          53,560          51,610              97
    Support Activities for Water Transportation.................          57,220          55,080              99
    Other Pipeline Transportation...............................          67,240          64,180             117
    Metal Ore Mining............................................          56,540          53,900             124
    Natural Gas Distribution....................................          68,630          64,930             139
    Wired Telecommunications Carriers...........................          62,540          59,050             147
    Software Publishers.........................................          91,050          85,290             156
    Rail Transportation.........................................          56,020          52,560             166
10 industries with largest variance in wage distribution:
    Offices of Physicians.......................................          69,710          38,960           1,601
    Spectator Sports............................................          40,550          25,720           1,357
    Motion Picture and Video Industries.........................          61,280          38,580           1,276
    Health and Personal Care Stores.............................          40,860          26,790           1,248
    Home Health Care Services...................................          36,650          24,600           1,199
    Cut and Sew Apparel Manufacturing...........................          34,530          23,280           1,199
    Independent Artists, Writers, and Performers................          63,560          41,550           1,156
    Agents and Managers for Artists, Athletes, Entertainers, and          67,660          44,820           1,104
     Other Public Figures.......................................
    Other Professional, Scientific, and Technical Services......          45,860          31,470           1,079
    Electronic Shopping and Mail-Order Houses...................          43,710          30,230           1,065
----------------------------------------------------------------------------------------------------------------

                                                                                [GRAPHIC] [TIFF OMITTED] TP01OC13.002

    Because these estimated minimum appropriate sample sizes are based
on wage distributions measured by the BLS in standardized industries,
they may not correspond to the appropriate minimum sample size at
registrants with an

employee base that does not correspond precisely to one of these
industries. Even for registrants whose operations are wholly within one
of these standardized industries, their appropriate sample size may
also be different to the extent that their distribution of employee
wages is different than that of the industry. In these instances, a
registrant's appropriate sample size could be higher or lower than that
estimated for its industry.
    Of the nearly 4,000 registrants that we believe will be subject to
the rule, we estimate that approximately 50% have an organizational
structure characterized by a compensation distribution that falls into
a tractable statistical distribution category, which would allow the
registrant use a simple random sampling method.\205\ Of these
registrants for which we have industry classifications that match the
BLS data, Table 3 shows estimated minimum appropriate sample sizes
assuming that each registrant's wage distribution is similar to the
BLS-measured industry distribution.
---------------------------------------------------------------------------

    \205\ This estimate is based on data from Standard and Poor's
Compustat Segment database. Segment information is available for
approximately 65% of the potentially affected registrants. Among
these, 50% report having multiple business segments and 60% report
having multiple geographical segments. Also, 25% of the potentially
affected registrants self-report that they have both multiple
business segments and geographical segments. Because the segment
information is self-reported by the companies, it not based on
standardized definitions of geographic areas such as states,
countries or regions. Multiple geographical segments could represent
different geographies with similar operations and thus similar wage
distributions, for examples, different states within the United
States.

                         Table 3--Number of Registrants According to Sample Size Ranges
----------------------------------------------------------------------------------------------------------------
                                                                     Number of                      Median wage
                     Sample size (n) ranges                         registrants   Mean wage  ($)        ($)
----------------------------------------------------------------------------------------------------------------
n < 100.........................................................              77          62,281          60,245
100 <= n < 250..................................................             149          50,269          46,298
250 <= n < 500..................................................             441          45,154          39,232
500 <= n < 750..................................................             682          41,736          33,410
750 <= n < 1000.................................................             119          46,997          34,897
n >= 1000.......................................................              29          61,221          37,906
                                                                 -----------------------------------------------
    Total.......................................................           1,497  ..............  ..............
----------------------------------------------------------------------------------------------------------------

    For the remaining 50% of the potentially affected registrants that
have multiple business segments, and thus are likely to maintain their
payroll systems separately for each segment, statistical sampling could
involve more steps and other assumptions. This may be particularly true
for approximately 25% of the potentially affected registrants that
self-report that they have both multiple business segments and
geographical segments.
    While we believe that there is more than one statistical sampling
approach that could result in reasonable estimates of the median for
these registrants, all would be more complicated than simple random
sampling. The alternative approaches would require drawing observations
from each business or geographical segment with a unique distribution
of compensation and statistically inferring the registrant's overall
median based on the observations drawn. For example, the statistical
inference may involve a weighted sample median using a stratified
cluster sampling,\206\ or a numerically solved median estimate based on
their knowledge or assumptions on the size and distribution for each
segment and pre-estimated mean and variance of each business or
geographical segment. Some methods, however, may not easily generate
confidence intervals around the estimates or prescribe a minimum sample
size. As a result, generating reasonable estimates through statistical
sampling could result in a disproportionally higher cost to registrants
with more complicated payroll systems or organization structures.
Nevertheless, we believe that permitting registrants to use statistical
sampling may lead to a reduction in compliance costs as compared to
other methods of identifying the median.
---------------------------------------------------------------------------

    \206\ See, e.g., S. Gross. Median estimation in sample surveys.
In Proceedings of the Section on Survey Research Methods. American
Statistical Association, 181-184. (1980).
---------------------------------------------------------------------------

    We believe that a flexible approach would not significantly
diminish the potential benefits of the disclosure mandated by Section
953(b). Although the proposed flexible approach could reduce the
comparability of disclosure across registrants, we do not believe that
precise conformity or comparability of the ratio across companies is
necessary. As noted earlier in this release, some commenters believe
that a primary benefit of the pay ratio disclosure would be providing a
company-specific metric that investors could use to evaluate the PEO's
compensation within the context of his or her own company, rather than
a benchmark for compensation arrangements across companies.
Accordingly, we do not believe that improving the comparability of the
disclosure across companies by mandating a specific method for
identifying the median would be justified in light of the costs that
would be imposed on registrants by a more prescriptive rule. We do not
believe that mandating a particular methodology would necessarily
improve the comparability across companies because of the numerous
other factors that could also cause the ratios to be less meaningful
for company-to-company comparison. We also believe that greater
comparability across companies could increase the likelihood that a
registrant's competitors could infer proprietary or sensitive
information about the registrant's business. This in turn could
increase the indirect costs to registrants of the proposed
requirements, such as competitive harms in labor markets discussed in
the previous section or general costs arising from the mandated
disclosure requirement.
    Finally, we recognize that allowing registrants to select a
methodology to identify the median, including identifying the median
employee using and allowing the use of reasonable estimates, rather
than prescribing a methodology or set of methodologies, could reduce
benefits for investors if that flexibility enables a registrant to make
its pay ratio appear more ``favorable'' and thus results in a pay ratio
that does not reflect a more precisely and consistently calculated
ratio. We are not able to determine, however, the extent to which the
flexibility allowed by the proposed requirements could actually enable
a registrant to adjust its pay ratio in any material respects.

e. Determination of Total Compensation
    As mandated by Section 953(b), the proposed requirements would
define ``total compensation'' by reference to Item 402(c)(2)(x) as in
effect on the day before the date of enactment of the Dodd-Frank Act,
or July 20, 2010. We note that several commenters raised concerns about
the potential compliance costs that could arise from the complexity of
the ``total compensation'' calculation under Item 402(c)(2)(x).\207\
Commenters have observed that, because of this complexity, registrants
typically compile information required by Item 402(c) manually for the
named executive officers, which they have stated takes significant time
and resources.\208\ We also note that commenters have raised concerns
about the ability of companies to compile and verify the data needed to
calculate total compensation in accordance with Item 402(c)(2)(x) for
every employee and have asserted that the costs of doing so would be
significant and unwarranted in light of the potential benefits of the
disclosure, which such commenters anticipate to be minimal.\209\ To
address these concerns, some commenters recommended that registrants be
permitted to use reasonable estimates to determine the value of the
various elements of total compensation of employees in accordance with
Item 402(c)(2)(x).\210\ We generally support this recommendation and we
provided guidance about the use of estimates in this context.
---------------------------------------------------------------------------

    \207\ See, e.g., COEC I and II; and letters from American
Benefits Council; Brian Foley & Co.; Group of Exec. Comp. Lawyers;
Group of Trade Associations; Protective Life Corporation; SCSGP; and
Towers Watson.
    \208\ See letter from Davis Polk.
    \209\ See, e.g., COEC I and II; and letters from ABA; American
Benefits Council; Protective Life Corporation; and R. Morrison.
    \210\ See COEC I and letters from ABA and SCSGP.
---------------------------------------------------------------------------

    We do not believe that the use of reasonable estimates would
diminish the potential usefulness of the pay ratio disclosure as a
general point of comparison of PEO pay to employee pay within a
company, and we do not believe that the use of reasonable estimates
would be inconsistent with Section 953(b). Furthermore, we believe that
requirements that allow registrants to use reasonable estimates in
these calculations would impose lower compliance costs than
requirements that prohibit the use of estimates. We acknowledge that,
however, to the extent that the use of estimates causes the ratio to be
an inaccurate reflection of the registrant's median compensation, it
could diminish the potential usefulness of the disclosure.
    As discussed above, the proposal allows registrants to identify the
median employee using any consistently applied compensation measure and
then determine and disclose the Item 402(c)(2)(x) total compensation
for that median employee. A registrant would be permitted to calculate
compensation for all employees in accordance with Item 402(c)(2)(x),
but would only be required to calculate and disclose such information
for the median employee. The proposed rules also permit registrants to
use reasonable estimates in the calculation of annual total
compensation for the median employee that must be disclosed and used in
the pay ratio.
f. Disclosure of Methodology, Assumptions and Estimates; Additional
Disclosure
    We are proposing instructions for the disclosure of the methodology
and material assumptions, adjustments and estimates used in the
identification of the median or the calculation of the annual total
compensation (or any elements of total compensation) of employees. The
proposed instruction provides that registrants must briefly disclose
and consistently apply any methodology used to identify the median and
any material assumptions, adjustments or estimates used to identify the
median or to determine total compensation or any elements of total
compensation, and registrants must clearly identify any estimated
amount as such. Registrants' disclosure of the methodology and material
assumptions, adjustments and estimates used should be designed to
provide information for a reader to be able to evaluate the
appropriateness of the estimates. For example, when statistical
sampling is used, registrants should disclose the size of both the
sample and the estimated whole population, any material assumptions
used in determining the sample size, which sampling method (or methods)
is used, and, if applicable, how the sampling method deals with
separate payrolls such as geographically separated employee populations
or other issues arising from multiple business or geographic segments.
In order to promote comparability from year to year, the instruction
also provides that, if a registrant changes methodology or material
assumptions, adjustments or estimates from those used in the previous
period, and if the effects of any such change are material, the
registrant must briefly describe the change, the reasons for the change
and an estimate of the impact of the change on the median and the
ratio. This approach is consistent with other Commission rules that
allow registrants flexibility to choose a methodology, such as the
valuation method for determining the present value of accrued pension
benefits in Item 402(h)(2) or the description of models, assumptions
and parameters in Item 305 of Regulation S-K (quantitative and
qualitative disclosures about market risk). Five commenters recommended
requiring this information in cases where the rules allowed registrants
to use estimation techniques.\211\
---------------------------------------------------------------------------

    \211\ See AFL-CIO II and COEC I; and letters from Group of Exec.
Comp. Lawyers, Meridian Compensation Partners, LLC; and SCSGP.
---------------------------------------------------------------------------

    Because we are concerned that disclosure about methodology,
assumptions, adjustments and estimates could become dense and overly
technical, which we believe would limit its usefulness, the instruction
asks for a brief overview and makes clear that it is not necessary to
provide technical analyses or formulas. We do not believe that a
detailed, technical discussion (such as statistical formulas,
confidence levels or the steps used in data analysis) would enhance the
potential usefulness of the pay ratio, as suggested by some
commenters,\212\ as a metric to evaluate the level of PEO compensation.
We expect that a succinct description of the methodology and material
assumptions, adjustments and estimates used would not be overly
burdensome for registrants and would be more informative for investors.
We expect that the costs of the additional disclosure on registrants
would be marginal, as these additional disclosures are intended to
simply describe what has already been done or assumed in the
calculations, and therefore will not require additional actions for
registrants. It is likely that some costs may be incurred in developing
and reviewing the appropriate language to describe the approach taken.
---------------------------------------------------------------------------

    \212\ See, e.g., Senate Letter; House Letter; and AFL-CIO I; and
letters from CtW Investment Group and UAW Retiree Medical Benefits
Trust.
---------------------------------------------------------------------------

    We considered the recommendations of commenters relating to
requirements for additional narrative discussion of the ratio and
supplemental information about a registrant's employee compensation
structures and policies.\213\ Section 953(b) does not mandate a
narrative discussion to accompany the pay ratio disclosure, and the
proposed requirements do not include a specific requirement for
narrative discussion of the ratio, its components or any supplemental
information that could provide context

for or explain the ratio. We believe that additional narrative
disclosure about the ratio would not, for many registrants, provide
useful information for investors that would justify the costs
associated with providing that additional narrative disclosure. While
some investors could find supplemental information about a registrant's
employment practices, the composition of its workforce and similar
topics (such as employment policies, use of part-time workers, use of
seasonal workers, outsourcing and off-shoring strategies) useful or
informative, we note that Section 953(b) does not call for that level
of detail. We note too, that, as with other mandated disclosure under
our rules, registrants would be permitted to supplement the required
disclosure with a narrative discussion if they choose to do so.
---------------------------------------------------------------------------

    \213\ See AFL-CIO I and letter from Americans for Financial
Reform.
---------------------------------------------------------------------------

g. Defining ``Annual''
    In order to provide clarity, the proposed requirement defines
``annual total compensation'' to mean total compensation for the last
completed fiscal year, consistent with the time period used for the
other Item 402 disclosure requirements. This clarification is intended
to address questions from commenters about the need to update the pay
ratio disclosure throughout the year and make clear that the disclosure
does not need to be updated more than once a year.
    Two commenters suggested other possible alternatives for the
calculation of ``annual'' total compensation. One of these commenters
recommended that registrants should have flexibility to select a time
period for calculating the annual total compensation of employees,
noting that registrants without a calendar year fiscal year-end might
benefit from the flexibility to use the calendar year period since that
would be consistent with the registrant's tax reporting
obligations.\214\ Another commenter suggested two timing rules that
would grant registrants further flexibility to use the 12-month time
periods that their payroll systems use.\215\ We understand that these
suggestions are intended to reduce compliance costs for registrants by
giving registrants the ability to use information in the form that it
is currently compiled for other purposes, such as tax and payroll
recordkeeping. We believe, however, that it is appropriate for the time
period for the pay ratio disclosure to be the same as the time period
used for the registrant's other executive compensation disclosures,
although the proposed flexibility in identifying the median employee
could address the concerns raised by these commenters.
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    \214\ See letter from American Benefits Council.
    \215\ See letter from Group of Exec. Comp. Lawyers
(recommending: ``Rule One--the registrant can select any date as of
which to calculate median compensation, provided the date is within
12 months of the proxy filing, and is the most recent practicable
date, and Rule Two--if different payroll systems are involved, the
12-month period for computing compensation data for each payroll
system's data will be acceptable so long as the period ends within
12 months of the date chosen under Rule One.'').
---------------------------------------------------------------------------

    As discussed above, we propose to allow a registrant that is
identifying the median employee by reference to compensation amounts
derived from its payroll or tax records to use the same annual period
that is used in the payroll or tax records from which the compensation
amounts are derived. We also did not propose to define or limit what
would qualify as payroll or tax records so that registrants would be
able to use information that they already track and report for tax
purposes. We believe that permitting companies to identify the median
employee using compensation information in the form that it is
maintained in their own books and records would reduce compliance
costs, yet still yield a reasonable estimate of the median employee.
Registrants using that approach to identify the median employee would
be required to calculate the Item 402(c)(2)(x) total compensation for
that median employee for the last completed fiscal year, in order to
maintain consistency with other Item 402 information.
h. Updating the Pay Ratio Disclosure for the Last Completed Fiscal Year
    The proposed requirements include instructions to clarify the
timing for updating pay ratio disclosure after the end of a
registrant's fiscal year. Without the proposed instructions, a
registrant could be required to include pay ratio disclosure in an
annual report or registration statement filed after the end of the
fiscal year, but before it has compiled the executive compensation
information for that fiscal year for inclusion in its proxy statement
relating to its annual meeting of shareholders, which could raise
additional incremental costs for registrants that elect to provide
executive compensation disclosure in their annual proxy statement
rather than their annual report and for registrants that are conducting
registered offerings at the beginning of their fiscal year.
    To address this, we considered the recommendation of commenters
that pay ratio disclosure not be required to be updated for the most
recently completed fiscal year until the registrant files its proxy
statement for its annual meeting of shareholders. The proposed
requirements generally follow this approach, but the proposed
instructions provide a similar accommodation for registrants that do
not file annual proxy statements \216\ and align the proposed
requirement to the timing rules for providing Item 402 disclosure in
annual reports and proxy and information statements. We believe that
the proposed instruction would provide certainty to registrants as to
when the updated information is required and would allow sufficient
time after the end of the fiscal year to identify the median. We
believe that such an approach would not diminish the potential
usefulness of the disclosure.
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    \216\ Based on a review of EDGAR filings in calendar year 2012,
approximately 250 registrants that would be subject to the proposed
requirements do not file proxy or information statements in
connection with annual meetings of shareholders, including 15D
filers (other than smaller reporting companies and ABS issuers) and
registrants that are not corporate entities required to hold annual
meetings of shareholders.
---------------------------------------------------------------------------

    We also believe that this approach could reduce additional costs
for registrants in connection with filings made or required to be made
before the filing of the proxy or information statement for the annual
meeting of shareholders (or written consents in lieu of such a meeting)
that would typically contain the registrant's other Item 402 disclosure
covering the most recently completed fiscal year. In addition, under
the proposed approach, updating the pay ratio disclosure would not be
an additional hurdle for a registrant that requests effectiveness of a
registration statement after the end of its fiscal year and before the
filing of the proxy statement for its annual meeting of shareholders.
In this regard, the proposed approach could alleviate some of the
potential impact on capital formation from Section 953(b).
i. Instructions for Registrants Relying on Instruction 1 to Items
402(c)(2)(iii) and (iv)
    We have also proposed instructions to provide consistency with
current executive compensation disclosure rules in cases where a
registrant cannot compute the total compensation of the PEO because the
salary or bonus of the PEO is not calculable until a later date.
Similar to existing requirements for the disclosure of PEO total
compensation under those circumstances, the proposed requirements
permit the registrant to omit pay ratio disclosure until those elements
of the PEO's total compensation are determined and to provide the pay
ratio disclosure in the same filing under Item 5.02(f) of Form

8-K in which the PEO's salary or bonus is disclosed. In taking the
proposed approach, we have assumed that the potential benefits of the
disclosure could be diminished if the pay ratio were to be calculated
using less than the entire amount of the PEO's total compensation for
the period, because the ratio would be lower than if it reflected the
full PEO total compensation, and that this could justify the potential
costs to investors of a delay in the timing of the disclosure.
    Instead of this approach, we considered whether to require
registrants to report pay ratio disclosure using a reasonable estimate
of the elements of PEO compensation that are not calculable. We also
considered whether registrants should be permitted to use an incomplete
amount, comprising only the elements of total compensation that are
calculable at the time.
    In some cases, the amount of compensation that is omitted under the
Instruction 1 to Items 402(c)(2)(iii) and (iv) could be significant.
Therefore, the pay ratio could be lower if it were presented using an
amount of PEO total compensation that fails to adequately account for
the amounts of salary or bonus ultimately included in the PEO's actual
total compensation, including the alternative approach of using
estimated PEO compensation, and such an approach could incentivize
registrants to give their PEOs more of these types of compensation in
order to achieve a more favorable ratio at the time of the proxy
statement or annual report. We believe that the potential incentive to
change compensation practices could be exacerbated by an alternative
approach that permitted or required calculation using incomplete total
compensation amounts.
    Based on the number of registrants that have historically relied on
Instruction 1 to Items 402(c)(2)(iii) and (iv),\217\ we do not expect
that the proposed instruction would impact a significant number of
registrants each year.
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    \217\ For example, based on a review of EDGAR filings in 2012,
only 22 registrants relied on Instruction 1 to Items 402(c)(2)(iii)
and (iv) in connection with the total compensation of their PEO.
---------------------------------------------------------------------------

j. Status of Disclosure as Filed Not Furnished
    Some commenters suggested that pay ratio information be deemed
``furnished'' and not ``filed'' for purposes of the Securities Act and
the Exchange Act.\218\ We note that Section 953(b) states that the pay
ratio information be disclosed in the registrant's ``filings'' with the
Commission. We further note that one of the reasons that commenters
recommended treating the information as furnished and not filed is
because of the difficulty that some companies may have in determining
and verifying the information, which must be covered by the
certifications required for Exchange Act filings under the Sarbanes-
Oxley Act of 2002. We also recognize that some registrants could have
more difficulty in gathering and verifying the information than others.
Nevertheless, we believe that the flexibility afforded to registrants
in connection with identifying the median could reduce some of the
difficulties of compiling the required information, because registrants
would be able to tailor the methodology to reflect their own facts and
circumstances. The ability to use reasonable estimates in connection
with the calculation of annual total compensation for employees other
than the PEO could also alleviate some of these concerns. In addition,
we believe that the proposed transition periods discussed below, which
are designed to give registrants sufficient time to develop and
implement compliance procedures, could mitigate some concerns about
compiling and verifying the information.
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    \218\ See COEC I and letters from ABA; Protective Life
Corporation; and RILA.
---------------------------------------------------------------------------

k. Proposed Compliance Date
    Section 953(b) does not specify a date when registrants must begin
to comply with the requirements that we implement under the provision.
We are proposing to require that a registrant must begin to comply with
proposed Item 402(u) with respect to compensation for the registrant's
first fiscal year commencing on or after the effective date of the
rule, and, as proposed, a registrant would be permitted to omit this
initial pay ratio disclosure from its filings until the filing of its
annual report on Form 10-K for that fiscal year or, if later, the
filing of a proxy or information statement for its next annual meeting
of shareholders (or written consents in lieu of a meeting) following
the end of such year. Similar to the proposed instructions for updating
pay ratio disclosure, the proposed transition instructions also require
that this initial pay ratio disclosure must, in any event, be filed as
provided in connection with General Instruction G(3) of Form 10-K not
later than 120 days after the end of such fiscal year.
    Several commenters noted that companies will need a long transition
period to enable them to implement systems to compile the disclosure
and verify its accuracy.\219\ We understand that this time would likely
be needed by large, multinational registrants and any registrants that
currently do not have a centralized, consolidated payroll, benefits and
pension system that captures the information necessary to identify the
median of the annual total compensation of all employees,\220\ however,
we seek comment on whether the flexibility in the proposed rules would
reduce the need for a lengthy transition period. We expect that it will
take registrants one full reporting cycle to implement and test any
necessary systems,\221\ and we have designed the initial transition
period to provide that time for transition and implementation.
---------------------------------------------------------------------------

    \219\ See letters from ABA; American Benefits Council; Brian
Foley & Co.; Group of Exec. Comp. Lawyers; Davis Polk; NACD; SCSGP;
RILA; and Towers Watson.
    \220\ See letters from ABA; American Benefits Council; Brian
Foley & Co.; Group of Exec. Comp. Lawyers; Davis Polk; NACD; SCSGP;
RILA; and Towers Watson.
    \221\ See letters from American Benefits Council and Group of
Exec. Comp. Lawyers.
---------------------------------------------------------------------------

l. Proposed Transition Periods
    The proposed requirements also include a transition period for new
registrants because we are sensitive to the impact that the proposed
rules could have on capital formation. We note that the requirements of
Section 953(b), as amended by the JOBS Act, distinguish between certain
newly public companies and all other issuers by providing an exemption
for emerging growth companies. We also note that the incremental time
needed to compile pay ratio disclosure could cause companies that are
not emerging growth companies to delay an initial public offering,
which could have a negative impact on capital formation. In this
regard, we expect that, in order to be disqualified for emerging growth
company status, these companies are likely to be businesses with more
extensive operations or a greater number of employees than many
emerging growth companies, which could increase the initial efforts
needed to comply with the proposed requirements. We believe that
providing a transition period for these newly public companies could
mitigate this potential impact on capital formation.
    Accordingly, the proposed requirements also include instructions
that would permit new registrants to delay compliance, so that pay
ratio disclosure would not be required in a registration statement on
Form S-1 or S-11 for an initial public offering or a registration
statement on Form 10. Instead, such a registrant would be

required to first comply with proposed Item 402(u) with respect to
compensation for the first fiscal year commencing on or after the date
the registrant first becomes subject to the requirements of Section
13(a) or Section 15(d) of the Exchange Act.
    We note that commenters did not address the impact of pay ratio
disclosure requirements on newly public companies. Although investors
might benefit from pay ratio information in connection with an initial
public offering or Exchange Act registration, we believe it is
appropriate to give companies time to develop any needed systems to
compile the disclosure and verify its accuracy. The transition period
for new registrants is similar to the proposed time frame provided for
other registrants to comply with pay ratio disclosure requirements
following the effective date of the final rules. The proposed approach
is also similar to the current phase-in for newly public companies in
connection with Item 308 of Regulation S-K, for management's report on
the registrant's internal control over financial reporting. We seek
comment in this release on whether these timing and transition rules
are sufficient to address the burdens on capital formation that could
arise due to the mandated pay ratio disclosure requirements.
    We have not proposed a separate transition period for companies
that cease to qualify as emerging growth companies. We acknowledge that
companies exiting emerging growth status could need additional time to
implement systems to compile and verify their pay ratio disclosure,
particularly because registrants may not be able to predict in advance,
depending on which of the four conditions occurs, when they will cease
to be an emerging growth company. By exempting emerging growth
companies from the scope of Section 953(b), the JOBS Act essentially
provides a transition period for companies for as long as they qualify
for emerging growth company status. In connection with other executive
compensation provisions, the JOBS Act includes specific transition
periods for companies exiting emerging growth company status.\222\ It
does not, however, include a similar transition provision in the case
of Section 953(b). Therefore, we are not proposing any additional
transition period for compliance after a company ceases to qualify as
an emerging growth company. We seek comment in this release on whether
additional transition periods are needed for these companies.
---------------------------------------------------------------------------

    \222\ See, e.g., Section 102(a)(1)(B) (providing such a
transition for say-on-pay compliance).
---------------------------------------------------------------------------

E. Request for Comment

    Throughout this release, we have discussed the anticipated costs
and benefits of the proposed rules. We request data to quantify the
costs and the value of the benefits described throughout this release.
We seek estimates of these costs and benefits, as well as any costs and
benefits not described, that may result from the adoption of these
proposed amendments. We also request comments on the qualitative
benefits and costs we have identified and any benefits and costs we may
have overlooked.
    61. We request comment on all aspects of the costs and benefits of
the proposed rules, including identification and assessment of any
costs and benefits not already discussed. We seek comment and data on
the magnitude and the value of the benefits identified. We also welcome
comments on the accuracy of the cost estimates and request that
commenters provide data that may be relevant to these cost estimates.
In addition, we seek estimates and views regarding these costs and
benefits for particular covered registrants, including small
registrants, and, where relevant, for particular categories of covered
registrants, as well as any other costs or benefits that may result
from the adoption of these proposed amendments.
    62. What are the characteristics of employee compensation data that
current payroll systems (or other management information systems)
maintain? Would it be necessary for registrants to change such systems
or other employee compensation records in order to track the
information needed to comply with the proposed pay ratio rules? What
would the transition costs be to make any such changes? How generally
are payroll systems maintained across business or geographic segments
and how would the separate payroll information across segments be
aggregated to comply with the proposed rules? What are the initial and
ongoing costs to comply and what activities incur those costs, such as
burden hours/wages of company personnel, development and maintenance of
computer systems, use of third-party service providers and other
professionals? How would the use of reasonable estimates or statistical
sampling affect these costs generally, including the need to change
current payroll systems? Please also describe benefits, if any, to the
registrant, beyond compliance with the proposed rules, from
implementing changes to current payroll systems or management
information systems.
    63. How would allowing registrants to choose an approach for
determining the median influence potential costs? How would allowing
registrants to choose an approach that permits registrants to use any
consistently applied measure of compensation and/or statistical
sampling to identify the median employee and then calculate that
employee's total compensation in accordance with Item 402(c)(2)(x)
affect compliance costs, particularly as compared to requiring
registrants to calculate total compensation in accordance with Item
402(c)(2)(x) for all employees to identify the median? Comparisons of
the costs of each approach would be particularly helpful. Would
allowing for alternative approaches retain the benefits of Section
953(b)? If not, please provide specific information or data on what
benefits would not be achieved under the proposed rules.
    64. What are the transition costs that will be imposed on
registrants as a result of the proposals, if adopted? Please be
detailed and provide quantitative data or support, as practicable.
Where applicable, please also distinguish between costs that are
initial, non-recurring implementation costs and the costs of ongoing
compliance.
    65. What impact would the proposed rules have on the incentives of
boards, senior executives and shareholders? Would the proposed rules be
likely to change the behavior of registrants, investors or other market
participants? Should we alter the proposed requirements to address that
impact? If so, describe any changes that would address that impact and
discuss any related costs and benefits that would arise from such a
change.
    66. What impact would the proposed rules have on competition? Would
the expected compliance costs put registrants subject to the rule at a
competitive disadvantage? Are there particular industries or types of
registrants that would be more likely to be impacted? If so, what
changes to the proposed requirements could mitigate the impact?
    67. What impact would the proposed rules have on market efficiency?
Are there any positive or negative effects of the proposed rules on
efficiency that we may have overlooked? How could the rules be changed
to promote any positive effect or to mitigate any negative effect on
efficiency, while still satisfying the mandate of Section 953(b)?

    68. Could a registrant's competitors infer proprietary or sensitive
information about the registrant's business operations, strategy or
labor cost-structure from the proposed pay ratio disclosure? If so,
please tell us what type of information could be inferred and how that
could be determined. Please also tell us what changes to the proposed
requirements could mitigate that concern?
    69. What impact would the proposed rules have on capital formation?
How could the rules be changed to promote capital formation or to
mitigate any negative effect on capital formation resulting from the
rules, while still satisfying the mandate of Section 953(b)?

V. Paperwork Reduction Act

A. Background

    Certain provisions of the proposed amendments contain ``collection
of information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (the ``PRA''). \223\ We are submitting the
proposed amendments to the Office of Management and Budget (``OMB'')
for review in accordance with the PRA.\224\ The titles for the
collection of information are:
---------------------------------------------------------------------------

    \223\ 44 U.S.C. 3501 et seq.
    \224\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

     ``Regulation S-K'' (OMB Control No. 3235-0071); \225\
---------------------------------------------------------------------------

    \225\ The paperwork burden from Regulation S-K is imposed
through the forms that are subject to the disclosures in Regulation
S-K and is reflected in the analysis of those forms. To avoid a
Paperwork Reduction Act inventory reflecting duplicative burdens,
for administrative convenience, we estimate the burdens imposed by
Regulation S-K to be a total of one hour.
---------------------------------------------------------------------------

     ``Form 10-K'' (OMB Control No. 3235-0063);
     ``Regulation 14A and Schedule 14A'' (OMB Control No. 3235-
0059); \226\
---------------------------------------------------------------------------

    \226\ As described below, our estimates for Form 10-K take into
account the burden that would be incurred by including the proposed
disclosure in the annual report directly or incorporating by
reference from a proxy or information statement. To avoid a
Paperwork Reduction Act inventory reflecting duplicative burdens, we
estimate that the proposed disclosure would not impose an
incremental burden for proxy statements on Schedule 14A.
---------------------------------------------------------------------------

     ``Regulation 14C and Schedule 14C'' (OMB Control No. 3235-
0057); \227\
---------------------------------------------------------------------------

    \227\ As described below, our estimates for Form 10-K take into
account the burden that would be incurred by including the proposed
disclosure in the annual report directly or incorporating by
reference from a proxy or information statement. To avoid a
Paperwork Reduction Act inventory reflecting duplicative burdens, we
estimate that the proposed disclosure would not impose an
incremental burden for information statements on 14C.
---------------------------------------------------------------------------

     ``Form 8-K'' (OMB Control No. 3235-0060);
     ``Form S-1'' (OMB Control No. 3235-0065); \228\
---------------------------------------------------------------------------

    \228\ As described below, we have assumed that the burden
relating to the proposed disclosure requirements would be associated
primarily with Form 10-K rather than Forms S-1, S-4, S-11 or N-2 as
applicable (because registrants would incorporate the disclosure
from Form 10-K). To avoid a Paperwork Reduction Act inventory
reflecting duplicative burdens, we estimate that the proposed
disclosure would not impose an incremental burden for registration
statements on Form S-1.
---------------------------------------------------------------------------

     ``Form S-4'' (OMB Control No. 3235-0324) \229\
---------------------------------------------------------------------------

    \229\ As described below, we have assumed that the burden
relating to the proposed disclosure requirements would be associated
primarily with Form 10-K rather than Forms S-1, S-4, S-11 or N-2 as
applicable (because registrants would incorporate the disclosure
from Form 10-K). To avoid a Paperwork Reduction Act inventory
reflecting duplicative burdens, we estimate that the proposed
disclosure would not impose an incremental burden for registration
statements on Form S-4.
---------------------------------------------------------------------------

     ``Form S-11'' (OMB Control No. 3235-0067); \230\
---------------------------------------------------------------------------

    \230\ As described below, we have assumed that the burden
relating to the proposed disclosure requirements would be associated
primarily with Form 10-K rather than Forms S-1, S-11 or N-2 as
applicable (because registrants would incorporate the disclosure
from Form 10-K). To avoid a Paperwork Reduction Act inventory
reflecting duplicative burdens, we estimate that the proposed
disclosure would not impose an incremental burden for registration
statements on Form S-11.
---------------------------------------------------------------------------

     ``Form 10'' (OMB Control No. 3235-0064); \231\ and
---------------------------------------------------------------------------

    \231\ As described below, because we have assumed that all new
registrants would take advantage of the transition period afforded
to them under the proposed requirements, we estimate no annual
incremental increase in the paperwork burden associated with Form 10
as a result of the proposed requirements.
---------------------------------------------------------------------------

     ``Form N-2'' (OMB Control No. 3235-0026).\232\
---------------------------------------------------------------------------

    \232\ Only Forms N-2 filed by business development companies
would be subject to the proposed disclosure requirements, because
Form N-2 requires business development companies, and not other
investment companies, to provide Item 402 disclosure. As described
below, we have assumed that the burden relating to the proposed
disclosure requirements would be associated primarily with Form 10-K
rather than Forms S-1, S-11 or N-2 as applicable (because
registrants would incorporate the disclosure from Form 10-K). To
avoid a Paperwork Reduction Act inventory reflecting duplicative
burdens, we estimate that the proposed disclosure would not impose
an incremental burden for registration statements on Form N-2.
---------------------------------------------------------------------------

    These regulations, schedules and forms were adopted under the
Securities Act and the Exchange Act, and in the case of Form N-2,\233\
the Investment Company Act of 1940.\234\ They set forth the disclosure
requirements for periodic and current reports, registration statements
and proxy and information statements filed by companies to help
investors make informed investment and voting decisions. The hours and
costs associated with preparing, filing and sending each form or
schedule constitute reporting and cost burdens imposed by each
collection of information. An agency may not conduct or sponsor, and a
person is not required to respond to, a collection of information
unless it displays a currently valid OMB control number.
---------------------------------------------------------------------------

    \233\ 17 CFR 239.14 and 274.11a-1.
    \234\ 15 U.S.C. 80a-1 et seq.
---------------------------------------------------------------------------

    The proposals discussed in this release are intended to satisfy the
requirements of Section 953(b) of the Dodd-Frank Act, which directs the
Commission to amend Item 402 of Regulation S-K to add the pay ratio
disclosure requirements specified by that provision. Compliance with
the proposed requirements will be mandatory for affected registrants.
Responses to the information collections will not be kept confidential,
and there will be no mandatory retention period for the information
disclosed.

B. Summary of Collection of Information Requirements

    In order to satisfy the legislative mandate in Section 953(b), we
are proposing to add new paragraph (u) to Item 402 of Regulation S-K.
This new paragraph (u) would require registrants to disclose:
     The median of the annual total compensation of all
employees of the registrant (excluding the principal executive
officer),
     the annual total compensation of the registrant's
principal executive officer, and
     the ratio between these two amounts.
    For this purpose, Section 953(b) specifies that total compensation
is to be determined in accordance with Item 402(c)(2)(x). Item 402
already requires registrants to disclose the annual total compensation
of the principal executive officer in accordance with Item
402(c)(2)(x).\235\ The median of the annual total compensation of all
employees and the ratio would be new, incremental disclosure burdens
and would require affected registrants to collect compensation
information for employees that is not currently required to be
disclosed.
---------------------------------------------------------------------------

    \235\ As of the date of this proposal, the requirements for the
calculation of total compensation under Item 402(c)(2)(x) are the
same as those in effect on July 20, 2010. Therefore, for purposes of
this PRA analysis, we have assumed that registrants would not need
to recalculate the annual total compensation for the principal
executive officer in connection with the proposed pay ratio
disclosure.
---------------------------------------------------------------------------

    Investors and other market participants interested in executive
compensation disclosure have indicated that the proposed disclosure
would be

useful in informing investment and voting decisions, particularly for
say-on-pay votes and in director elections.\236\ In this regard, pay
ratio information could be used by shareholders for purposes of
evaluating the actions of the board of directors in fulfilling its
responsibilities to the company and its shareholders.\237\ Pay ratio
information could also be used to enhance an investor's understanding
of a registrant's compensation practices applicable to non-executive
employees relative to the named executive officers.\238\
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    \236\ See, e.g., letters from CtW Investment Group and S. Towns.
    \237\ See, e.g., letters from CtW Investment Group and UAW
Retiree Medical Benefits Trust.
    \238\ See, e.g., letters from CtW Investment Group and UAW
Retiree Medical Benefits Trust.
---------------------------------------------------------------------------

    The proposed disclosure under new paragraph (u) of Item 402 would
be required in registration statements and annual reports that require
executive compensation information under Item 402 of Regulation S-K and
in proxy and information statements relating to an annual meeting of
shareholders or written consents in lieu of such a meeting.\239\ In
addition, the proposed requirements would allow certain new registrants
to omit the disclosure otherwise required by Item 402(u) from filings
made during a specified transition period.
---------------------------------------------------------------------------

    \239\ Consistent with the scope of Section 953(b), the proposed
requirements would not apply to the annual reports and proxy and
information statements of emerging growth companies, smaller
reporting companies or foreign private issuers. In addition,
consistent with the instructions J and I of Form 10-K, the proposed
requirements would not apply to the annual reports of issuers of
asset-backed securities or to wholly-owned subsidiary registrants.
---------------------------------------------------------------------------

    Finally, in order to conform the proposed requirements to current
rules for the disclosure of PEO compensation when certain elements are
not yet known, the proposals include a conforming amendment to Item
5.02 of Form 8-K. This proposed amendment would require registrants
that are disclosing PEO total compensation in accordance with Item 5.02
of Form 8-K to also provide in that filing the updated pay ratio
disclosure required by Item 402(u). Because Item 5.02 of Form 8-K
provides a delayed method of filing information that would otherwise be
required in the registrant's proxy or information statement or annual
report, the PRA analysis assumes that the burden and cost of compliance
with proposed Item 402(u) would be associated primarily with those
forms and schedules rather than Form 8-K.

C. Burden and Cost Estimates Related to the Proposed Amendments

    We anticipate that the proposed amendments, if adopted, would
increase the burdens and costs for registrants that are subject to the
proposed disclosure requirements. For purposes of the PRA, we estimate
that the total annual increase in the paperwork burden for all affected
registrants to comply with the proposed collection of information
requirements to be approximately 545,792 hours of company personnel
time and total costs of approximately $72,772,200 for the services of
outside professionals.\240\ These estimates include the time and the
cost of implementing data gathering systems and disclosure controls and
procedures, compiling necessary data, preparing and reviewing
disclosure, filing documents and retaining records.
---------------------------------------------------------------------------

    \240\ We describe how we derived the three-year average hour and
cost burdens per response below. For administrative convenience, the
presentation of the totals related to the paperwork burden hours
have been rounded to the nearest whole number and the cost totals
have been rounded to the nearest hundred.
---------------------------------------------------------------------------

    In deriving these estimates, we have assumed that:
     Registrants subject to the proposed requirements would
satisfy the proposed requirements by either including the information
directly in annual reports on Form 10-K or incorporating the
information by reference from a proxy statement on Schedule 14A or
information statement on Schedule 14C. Our estimates assume that
substantially all of the burden relating to the proposed disclosure
requirements would be associated with Form 10-K;
     For registrants that would be permitted to provide their
pay ratio disclosure in a filing made in accordance with Item 5.02 of
Form 8-K, rather than in Form 10-K, the burden relating to the proposed
disclosure requirements would be associated primarily with Form 10-K
rather than Form 8-K; \241\
---------------------------------------------------------------------------

    \241\ Our PRA estimates for Form 8-K include an estimated one
hour burden to account for the inclusion of the proposed pay ratio
disclosure.
---------------------------------------------------------------------------

     100% of new registrants would use the proposed transition
provisions allowing them to omit the proposed disclosure from their
filings and, for follow-on offerings by these registrants, the burden
relating to the proposed disclosure requirements would be associated
primarily with Form 10-K rather than Forms S-1, S-11 or N-2 as
applicable (because registrants would incorporate the disclosure from
Form 10-K); and
     For Form 10-K and Form 8-K, 75% of the burden would be
carried by the company internally and that 25% of the burden would be
carried by outside professionals retained by the company at an average
cost of $400 per hour. \242\
---------------------------------------------------------------------------

    \242\ The portion of the burden carried by outside professionals
is reflected as a cost, while the portion of the burden carried by
the company internally is reflected in hours. We recognize that the
costs of retaining outside professionals may vary depending on the
nature of the professional services, but for purposes of this PRA
analysis we estimate that such costs would be an average of $400 per
hour. This is the rate we typically estimate for outside legal
services used in connection with public company reporting.
---------------------------------------------------------------------------

    As discussed above in this release, we understand from commenters
that the costs of compliance will likely vary among individual
companies based on a number of factors, including the size and
complexity of their organizations, the nature of their operations, the
nature of their workforce, the location of their operations, and,
significantly, the extent that their existing payroll systems collect
the information necessary to identify the median of the annual total
compensation of their employees (including whether a single,
centralized computer system covers all employees of the registrant and
whether the company's benefits and cash compensation records reside in
the same system). Because the proposed requirements would allow
registrants some flexibility in identifying the median and the annual
total compensation of employees, the actual burden could be lower if
the methodology used is able to reduce the effort needed to collect the
data or if the registrant is able to use information that it uses for
other purposes.\243\ We believe that the actual burdens will likely
vary significantly among individual companies based on these
factors.\244\ Our estimates reflect average burdens, and, therefore,
some companies may experience costs in excess of our estimates and some
companies may experience costs that are lower than our estimates.\245\
---------------------------------------------------------------------------

    \243\ See Section II of this release for a discussion of the
proposed requirements.
    \244\ We also note that companies could address these factors in
a variety of ways. For example, some companies might perform the
data collection and consolidation manually, while others may incur
the cost of implementing an information technology solution for
collecting the data. In addition, some companies might outsource
some of the burden hours to consultants or third party payroll
management providers, which could increase the costs to the
registrant while decreasing the burden hours of company personnel.
    \245\ Although we received some information from commenters and
stakeholders regarding the time and costs to comply with Section
953(b), in light of the limitations of that information described
above in Section IV of this release, we did not that information as
the basis for our PRA estimates. We received various hours
estimates, including estimates of approximately 201 to 500 hours,
and another estimate of 4,000 hours (based on 50 hours per country
where employees are located). We received four cost estimates,
including $7.6 million, $6.5 million, $4.725 million and $350,000
per registrant. We note that all of these estimates are estimates
based on the commenter's initial reading and interpretation of the
statute and do not reflect the discretionary choices we have made in
the proposed rule implementing the statute. For instance these
estimates do not take into account the ability to use statistical
sampling. We also note that the estimates do not represent the full
breadth of the registrant population. As noted in our economic
analysis section, we anticipate that the PRA estimates will be
revised in light of further information we receive on estimated
costs.

---------------------------------------------------------------------------

    We have derived our burden estimates by estimating the average
number of hours it would take a registrant to prepare and submit the
required data. In determining these estimates, we considered the burden
estimates for similar disclosure requirements. We believe the burden
hours associated with the preparation of the proposed pay ratio
disclosure may be comparable to a registrant's preparation of the
summary compensation table and other executive compensation disclosures
required by the 2006 amendments to Item 402.\246\ We recognize that, in
this proposal, the burden reflects the compilation of data covering the
entire workforce rather than only the named executive officers. We note
that the proposal allows for a broad use of any consistently applied
compensation measure and statistical sampling and the use of other
reasonable estimates to identify the median. As noted above, the actual
burden will vary depending on factors including the size of the
company, the number of employees and how many are located outside of
the United States. For a company with a medium-sized workforce, located
primarily in the United States, that is able to identify a median
employee from a sample of its employee population using a consistently
applied compensation measure, the burden hours could be less than the
estimated burden hours for the 2006 amendments to Item 402.\247\ In
contrast, for a large, multi-national registrant with hundreds of
thousands of employees, the burden hours could be more than the
estimated burden hours for the 2006 amendments to Item 402.\248\ We
believe, therefore, that it is reasonable to assume that the burden
hours will be a multiple of the average burden hours associated with
the 2006 amendments to Item 402. We also expect that, similar to the
2006 amendments, the proposed rules' burden would be greatest during
the first year of their effectiveness and diminish in subsequent years.
Accordingly, to derive our estimates, we multiplied the average burden
estimate for the 2006 amendments by two, yielding an estimated burden
of 340 hours in year one, 160 hours in year two and 70 hours in year
three and thereafter, for a three-year average burden of 190 hours.
---------------------------------------------------------------------------

    \246\ See 2006 Adopting Release, supra note 14, at 53215 (which
we estimated to be a three-year average of 95 hours, based on 170
hours in year one, 80 hours in year two and 35 hours in year three
and thereafter).
    \247\ We expect that such a company would be determining total
compensation under Item 402(c)(2)(x) for only one additional
employee.
    \248\ For these companies, we considered the estimated burden of
other international reporting regimes, such as the Commission's
rules implementing Section 1502 of the Dodd-Frank Act. See Conflict
Minerals, Release No. 34-67716 (Aug. 22, 2012) [77 FR 56273] (which
we estimated to be a three year average of 495 hours). In that
regard, we assume this proposal would be less burdensome because the
underlying information would be under the control of the registrant
rather than data that must be gathered from unrelated third parties
in the registrant's supply chain.
---------------------------------------------------------------------------

    We used this three-year average hour burden to estimate the cost
and hour burden for each collection of information as follows:
1. Regulation S-K
    While the proposed amendments would make revisions to Regulation S-
K, the collection of information requirements for that regulation are
reflected in the burden hours estimated for the forms and schedules
listed below. The rules in Regulation S-K do not impose any separate
burden. Consistent with historical practice, we are proposing to retain
an estimate of one burden hour to Regulation S-K for administrative
convenience.
2. Form 10-K
    Only Forms 10-K that are filed by registrants that are not smaller
reporting companies or emerging growth companies would be required to
include the proposed disclosure. For purposes of our PRA estimates, we
have assumed that 100% of asset-backed securities issuers would omit
Item 402 disclosure from Form 10-K pursuant to Instruction J of Form
10-K and 100% of wholly-owned subsidiary registrants would omit Item
402 disclosure from Form 10-K pursuant to Instruction I of Form 10-K,
and, accordingly, these registrants would also not be subject to the
proposed disclosure requirements. Based on a review of EDGAR filings in
calendar year 2011, we estimate that of the approximately 8,870 annual
reports filed in that year, approximately 3,830 annual reports are
filed by registrants that would be subject to the proposed disclosure
requirements.\249\ We estimate that the proposed disclosure
requirements would add an average of 190 burden hours to the total
burden hours required to produce each Form 10-K that is subject to the
proposed requirements (143 hours in-house personnel time and a cost of
approximately $19,000 for outside professionals).
---------------------------------------------------------------------------

    \249\ Based on a review of EDGAR filings in 2011, approximately
3,750 annual reports were filed by smaller reporting companies,
approximately 290 were filed by ABS issuers and approximately 100
were filed by wholly-owned subsidiaries of other registrants. We
have also reduced the total number of Form 10-K filings by 900 to
reflect the approximate number of emerging growth companies that
have identified themselves as such in their EDGAR filings as of May
2013.
---------------------------------------------------------------------------

    We estimate that the preparation of annual reports currently
results in a total annual compliance burden of 21,430,988 hours and an
annual cost of outside professionals of $2,857,465,000. If the
proposals were adopted, we estimate that the incremental cost of
outside professionals for annual reports would be approximately
$72,770,000 per year and the incremental company burden would be
approximately 545,775 hours per year.
3. Form 8-K
    As described in this release, we are proposing to require a
registrant that is filing its PEO total compensation on a delayed basis
due to the unavailability of certain components of compensation on Form
8-K (in accordance with Instruction 1 to Items 402(c)(2)(iii) and (iv)
of Regulation S-K and Item 5.02(f) of Form 8-K) to provide the proposed
pay ratio disclosure at the same time. We have proposed a conforming
amendment to Item 5.02 of Form 8-K that would require a registrant to
include updated pay ratio disclosure in the Form 8-K that it files to
disclose its PEO total compensation information.\250\ We estimate that
the burden for adding the pay ratio disclosure to that Form 8-K filing
would be one hour per registrant.\251\ We also estimate that the
proposed Form 8-K amendment would not result in additional Form 8-K
filings because registrants who omit disclosure in reliance on
Instruction 1 to Items 402(c)(2)(iii) and (iv) are already required to
file a Form 8-K. The proposed amendments would, however, add pay ratio
disclosure requirements to that Form 8-K filing.
---------------------------------------------------------------------------

    \250\ See Section II.C.7.b. above.
    \251\ As noted above, we have assumed that the burden relating
to the proposed pay ratio requirements would remain associated with
the registrant's proxy or information statement or annual report,
and, therefore, our PRA estimates for those forms reflect that
burden.
---------------------------------------------------------------------------

    Based on a review of EDGAR filings for calendar years 2011 and
2012, we estimate that approximately 29 Forms

8-K are filed pursuant to Item 5.02(f) annually and approximately 75%
of these relate to disclosure of PEO compensation. As a result, we
estimate that 22 of the Forms 8-K filed in a given year would spend 1
additional hour preparing the disclosure required by the amendments
(0.75 hours of internal personnel time and a cost of approximately $100
for professional services), in addition to the total burden hours
required to produce each Form 8-K. We estimate that the preparation of
current reports on Form 8-K currently results in a total annual
compliance burden of 507,665 hours and an annual cost of outside
professionals of $67,688,700. If the proposals were adopted, we
estimate that the incremental company burden would be approximately
16.5 hours per year and approximately $2,200 in the incremental cost of
outside professionals for current reports on Form 8-K.
4. Proxy Statements on Schedule 14A
    Only proxy statements on Schedule 14A that are required to include
Item 402 information, and that are not filed by smaller reporting
companies or emerging growth companies, would be required to include
the proposed pay ratio disclosure. For purposes of our PRA estimates,
consistent with past amendments to Item 402,\252\ we have assumed that
all of the burden relating to the proposed disclosure requirements
would be associated with Form 10-K, even if registrants include the
proposed disclosure required in Form 10-K by incorporating that
disclosure by reference from a proxy statement on Schedule 14A.
---------------------------------------------------------------------------

    \252\ We took a similar approach in connection with the rules
for Summary Compensation Table disclosure required by the 2006
amendments to Item 402. See 2006 Adopting Release, supra note 14.
---------------------------------------------------------------------------

5. Information Statements on Schedule 14C
    Only information statements on Schedule 14C that are required to
include Item 402 information, and that are not filed by smaller
reporting companies or emerging growth companies, would be required to
include the proposed pay ratio disclosure. For purposes of our PRA
estimates, consistent with past amendments to Item 402, we have assumed
that all of the burden relating to the proposed disclosure requirements
would be associated with Form 10-K, even if registrants include the
proposed disclosure required in Form 10-K by incorporating that
disclosure by reference from an information statement on Schedule 14C.
6. Form S-1
    Because we have assumed that all new registrants would take
advantage of the transition period afforded to them under the proposed
requirements, we estimate that approximately 70 registration statements
on Form S-1 would be required to include the proposed disclosure.\253\
In addition, because we assume that all of these Forms S-1 will
incorporate by reference the registrant's disclosure from its annual
report, we have assumed that all of the burden relating to the proposed
disclosure requirements would be associated with Form 10-K.
---------------------------------------------------------------------------

    \253\ Based on a review of EDGAR filings for calendar year 2012,
we estimate that approximately 70 Forms S-1 would be filed in
connection with follow-on offerings (rather than initial public
offerings) by companies that are not emerging growth companies or
smaller reporting companies.
---------------------------------------------------------------------------

7. Form S-4
    We have assumed that registrants filing on Form S-4 for whom
executive compensation information under Item 402 is required pursuant
to Items 18 or 19 of Form S-4 will incorporate by reference the pay
ratio disclosure contained in the registrant's annual report. Thus, we
have assumed that all of the burden relating to the proposed disclosure
requirements would be associated with Form 10-K.
8. Form S-11
    Because we have assumed that all new registrants would take
advantage of the transition period afforded to them under the proposed
requirements, we have assumed that five registration statements on Form
S-11 would be required to include the proposed disclosure.\254\ In
addition, because we assume that these Forms S-11 will incorporate by
reference the registrant's pay ratio disclosure contained in its annual
report, we have assumed that all of the burden relating to the proposed
disclosure requirements would be associated with Form 10-K.
---------------------------------------------------------------------------

    \254\ Based on a review of EDGAR filings for calendar year 2012,
we estimate that approximately five Forms S-11 would be filed in
connection with follow-on offerings by registrants that are not
emerging growth companies.
---------------------------------------------------------------------------

9. Form N-2
    Only Forms N-2 filed by business development companies would be
subject to the proposed disclosure requirements. Based on a review of
EDGAR filings for calendar year 2011, our best estimate of the total
number of business development companies is 41 and that 28 of these
have no employees.\255\ Therefore, of the 205 Forms N-2 that are filed
annually, we estimate that approximately 41 are filed by business
development companies and approximately 13 of these business
development companies have employees. In addition, because we assume
that all of these Forms N-2 will incorporate by reference the
registrant's disclosure in its annual report, we have assumed that all
of the burden relating to the proposed disclosure requirements would be
associated with Form 10-K.
---------------------------------------------------------------------------

    \255\ As discussed in this release, the proposed requirements
for identifying the median apply to workers who are employees of the
registrant. Business development companies are often externally
managed rather than having their own employees.
---------------------------------------------------------------------------

10. Form 10
    Because we have assumed that all new registrants would take
advantage of the transition period afforded to them under the proposed
requirements, we estimate no annual incremental increase in the
paperwork burden associated with Form 10 as a result of the proposed
requirements.

D. Summary of Proposed Changes to Annual Compliance Burden in
Collection of Information

    Tables 1 and 2 below illustrate the total annual compliance burden
of the collection of information in hours and in cost under the
proposed amendments for annual reports on Form 10-K and current reports
on Form 8-K under the Exchange Act. The burden estimates were
calculated by multiplying the estimated number of annual responses by
the estimated average number of hours it would take a company to
prepare and review the proposed disclosure. We recognize that some
registrants may need to include the pay ratio disclosure in more than
one filing covering the same period, accordingly actual numbers may be
lower than our estimates.
    As discussed above, there is no change to the estimated burden of
the collection of information under Forms S-1, S-4, S-11 or N-2 or
under Schedule 14A and 14C because we have assumed that the burden
relating to the proposed disclosure requirements would be associated
primarily with Form 10-K. In addition, there is no change to the
estimated burden of the collection of information under Form 10,
because we have assumed that all new registrants would take advantage
of the proposed transition period. There is no change to the estimated
burden of the collection of information under Regulation S-K because
the burdens that Regulation S-K imposes are

reflected in our revised estimates for the forms.

                                     Table 1--Calculation of Increases in Burden Estimates Due to the Rule Proposal
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Estimated
                                                                                aggregate cost
                                         Estimated annual    Estimated hour       Estimated                            25% Outside         of outside
                                        responses subject      burden per         aggregate         75% Company        professional      professions in
                                           to proposed          response       incremental hour       (hours)            (hours)        connection with
                                           requirements                             burden                                                  proposed
                                                                                requirements
                                                      (A)                (B)    (C) = (A) * (B)   (D) = (C) * 0.75     (E) = C * 0.25   (F) = (E) * $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form 10-K.............................              3,830                190            898,700            545,775            181,925        $72,770,000
Form 8-K..............................                 22                  1                 22               16.5                5.5              2,200
                                       -----------------------------------------------------------------------------------------------------------------
    Total.............................              3,852                191            898,722            545,792            181,931         72,772,200
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                                   Table 2--Calculation of Total PRA Burden Estimates
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                       Current      Proposed     Current    Increase in    Proposed        Current        Increase in       Proposed
                                        annual       annual       burden       burden       burden       professional    professional     professional
                                      responses    responses      hours        hours        hours           costs            costs           costs
                                             (A)          (B)          (C)    (D) \256\  (E) = C + D                (F)           (G)            = F + G
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form 10-K..........................       14,296       14,296   21,430,988      545,775   22,105,013     $2,857,465,000   $72,770,000     $2,930,235,000
Form 8-K...........................      118,387      118,387      507,665         16.5    507,681.5         67,688,700         2,200         67,690,900
                                    --------------------------------------------------------------------------------------------------------------------
    Total..........................      132,683      132,683   21,938,653      545,792   22,612,694      2,925,153,700    72,772,200      2,997,925,900
--------------------------------------------------------------------------------------------------------------------------------------------------------

E. Request for Comment

    Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order
to:
---------------------------------------------------------------------------

    \256\ The increase in burden hours reflected in the table is
based on the aggregate incremental burden hours per form multiplied
by the annual responses that would be required to include additional
disclosure under our rules as proposed. As explained in the
discussion above, for purposes of determining the total increase in
burden hours, we have reduced the current number of annual responses
to reflect that the proposed disclosure requirements will not apply
to all forms filed. See Table 1 for estimates per response.
---------------------------------------------------------------------------

     Evaluate whether the proposed collections of information
are necessary for the proper performance of the functions of the
Commission, including whether the information would have practical
utility;
     Evaluate the accuracy of our estimates of the burden of
the proposed collections of information;
     Determine whether there are ways to enhance the quality,
utility and clarity of the information to be collected;
     Evaluate whether there are ways to minimize the burden of
the collections of information on those who respond, including through
the use of automated collection techniques or other forms of
information technology; and
     Evaluate whether the proposed amendments would have any
effects on any other collections of information not previously
identified in this section.
    Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
the burdens. Persons who desire to submit comments on the collection of
information requirements should direct their comments to the OMB,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Room 10102, New Executive
Office Building, Washington, DC 20503, and send a copy of the comments
to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission,
100 F Street NE., Washington, DC 20549-1090, with reference to File No.
S7-07-13. Requests for materials submitted to the OMB by us with regard
to these collections of information should be in writing, refer to File
No. S7-07-13 and be submitted to the Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE., Washington, DC
20549-2736. Because the OMB is required to make a decision concerning
the collections of information between 30 and 60 days after
publication, your comments are best assured of having their full effect
if the OMB receives them within 30 days of publication.

VI. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\257\ we solicit data to determine whether the
proposed amendments constitute a ``major'' rule. Under SBREFA, a rule
is considered ``major'' where, if adopted, it results or is likely to
result in:
---------------------------------------------------------------------------

    \257\ Public Law 104-121, tit. II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more
(either in the form of an increase or a decrease);
     A major increase in costs or prices for consumers or
individual industries; or
     Significant adverse effects on competition, investment or
innovation.
    Commenters should provide comment and empirical data on (a) the
potential annual effect on the U.S. economy; (b) any increase in costs
or prices for consumers or individual industries; and (c) any potential
effect on competition, investment or innovation.

VII. Regulatory Flexibility Act Certification

    The Commission hereby certifies, pursuant to 5 U.S.C. 605(b), that
the amendments contained in this release, if adopted, would not have a
significant economic impact on a substantial number of small entities.
The proposed amendments would provide that a registrant (other than a
smaller reporting company or an emerging growth company) would be
required to disclose a pay ratio (showing the median of the

annual total compensation of all employees of the registrant and its
subsidiaries to the annual total compensation of the principal
executive officer of the registrant) in filings that are required to
include executive compensation information pursuant to Item 402 of
Regulation S-K. Section 953(b) does not apply to smaller reporting
companies and does not apply to emerging growth companies, and,
consistent with Section 953(b), the proposed requirements would not
apply to smaller reporting companies or emerging growth companies.
Because smaller reporting companies and emerging growth companies are
not subject to the proposed requirements, we believe the proposed rules
would not have a significant economic impact on a substantial number of
small entities.

VIII. Statutory Authority and Text of Amendments

    The amendments contained herein are being proposed pursuant to
Sections 7, 10 and 19(a) of the Securities Act, Sections 3(b), 12, 13,
14, 15(d) and 23(a) of the Exchange Act, Section 953(b) of the Dodd-
Frank Act, as amended, and Section 102(a)(3) of the JOBS Act.

List of Subjects

17 CFR Part 229

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 249

    Brokers, Reporting and recordkeeping requirements, Securities.

Text of Proposed Amendments

    In accordance with the foregoing, title 17, chapter II of the Code
of Federal Regulations, is proposed to be amended as follows:

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933 AND SECURITIES EXCHANGE ACT OF 1934--REGULATION S-K

0
1. The general authority citation for part 229 is revised to read as
follows:

    Authority:  15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll,
78 mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-
38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; Sec. 953(b)
Pub. L. 111-203, 124 Stat. 1904; and Sec. 102(a)(3) Pub. L. 112-106,
126 Stat. 309, unless otherwise noted.

0
2. Amend Sec.  229.402 by:
0
a. In paragraph (l) removing ``(k) and (s)'' and adding in its place
``(k), (s) and (u)''; and
0
b. Adding paragraph (u) directly after the Instructions to Item 402(t).
    The addition reads as follows:

Sec.  229.402  (Item 402) Executive Compensation.

* * * * *
    (u) Pay ratio disclosure. (1) Disclose:
    (i) The median of the annual total compensation of all employees of
the registrant, except the PEO of the registrant;
    (ii) The annual total compensation of the PEO of the registrant;
and
    (iii) The ratio of the amount in paragraph (u)(1)(i) of this Item
to the amount in paragraph (u)(1)(ii) of this Item. For purposes of the
ratio required by this paragraph (u)(1)(iii), the amount in paragraph
(u)(1)(i) of this Item shall equal one, or, alternatively, the ratio
may be expressed narratively as the multiple that the amount in
paragraph (u)(1)(ii) of this Item bears to the amount in in paragraph
(u)(1)(i) of this Item.
    (2) (i) For purposes of this paragraph (u), the total compensation
of employees of the registrant (including the PEO of the registrant)
shall be determined in accordance with paragraph (c)(2)(x) of this Item
402. In determining the total compensation, all references to ``named
executive officer'' in this Item 402 and the instructions thereto may
be deemed to refer instead, as applicable, to ``employee'' and, for
non-salaried employees, references to ``base salary'' and ``salary'' in
this Item 402 and the instructions thereto may be deemed to refer
instead, as applicable, to ``wages plus overtime.''
    (ii) For purposes of this paragraph (u), annual total compensation
means total compensation for the registrant's last completed fiscal
year.
    (3) For purposes of this paragraph (u), employee or employee of the
registrant means an individual employed by the registrant or any of its
subsidiaries as of the last day of the registrant's last completed
fiscal year. This includes any full-time, part-time, seasonal or
temporary worker employed by the registrant or any of its subsidiaries
on that day (including officers other than the PEO).
    Instruction 1 to Item 402(u)--Updating for the last completed
fiscal year. Pay ratio information (i.e., the disclosure called for by
paragraph (u)(1) of this Item) with respect to the registrant's last
completed fiscal year is not required to be disclosed until the filing
of its annual report on Form 10-K for that last completed fiscal year
or, if later, the filing of a definitive proxy or information statement
relating to its next annual meeting of shareholders (or written
consents in lieu of such a meeting) following the end of such fiscal
year; provided that, the required pay ratio information must, in any
event, be filed as provided in General Instruction G(3) of Form 10-K
(17 CFR 249.310) not later than 120 days after the end of such fiscal
year. In any filing made by a registrant after the end of its last
completed fiscal year and before the filing of such Form 10-K or proxy
or information statement, as applicable, a registrant that was subject
to the requirements of paragraph (u) of this Item for the fiscal year
prior to the last completed fiscal year shall include or incorporate by
reference the information required by paragraph (u) of this Item for
that prior fiscal year.
    Instruction 2 to Item 402(u)--Methodology and use of estimates. (i)
Registrants may use (A) a methodology that uses reasonable estimates to
identify the median and (B) reasonable estimates to calculate the
annual total compensation or any elements of total compensation for
employees other than the PEO.
    (ii) In determining the employees from which the median is
identified, a registrant may use (A) its employee population or (B)
statistical sampling or other reasonable methods.
    (iii) A registrant may identify the median employee using (A)
annual total compensation or (B) any other compensation measure that is
consistently applied to all employees included in the calculation, such
as amounts derived from the registrant's payroll or tax records. In
using a compensation measure other than annual total compensation to
identify the median employee, if that measure is recorded on a basis
other than the registrant's fiscal year (such as payroll or tax
information), the registrant may use the same annual period that is
used to derive those amounts. Where a compensation measure other than
annual total compensation is used to identify the median employee, the
registrant must (A) disclose the compensation measure used and (B)
calculate and disclose the annual total compensation for that median
employee.
    (iv) Registrants must briefly disclose and consistently apply any
methodology used to identify the median and any material assumptions,
adjustments or estimates used to identify the median or to determine
total compensation or any elements of total compensation, and
registrants must clearly identify any estimated amount. This disclosure
should be a brief overview; it is not

necessary to provide technical analyses or formulas. If a registrant
changes methodology or material assumptions, adjustments or estimates
from those used in its pay ratio disclosure for the prior fiscal year,
and if the effects of any such change are material, the registrant
shall briefly describe the change and the reasons for the change, and
shall provide an estimate of the impact of the change on the median and
the ratio.
    Instruction 3 to Item 402(u)--Permitted annualizing adjustments. A
registrant may annualize the total compensation for all permanent
employees (other than those in temporary or seasonal positions) that
were employed by the registrant for less than the full fiscal year
(such as newly hired employees or permanent employees on an unpaid
leave of absence during the period).
    Instruction 4 to Item 402(u)--PEO compensation not available. A
registrant that is relying on Instruction 1 to Item 402(c)(2)(iii) and
(iv) in connection with the salary or bonus of the PEO for the last
completed fiscal year, shall disclose that the pay ratio required by
paragraph (u) of this Item is not calculable until the PEO salary or
bonus, as applicable, is determined and shall disclose the date that
the PEO's actual total compensation is expected to be determined. The
disclosure required by paragraph (u) of this Item must then be
disclosed in the filing under Item 5.02(f) of Form 8-K (17 CFR 249.308)
that discloses the PEO's salary or bonus in accordance with Instruction
1 to Item 402(c)(2)(iii) and (iv).
    Instruction 5 to Item 402(u)--Transition period. A registrant must
comply with paragraph (u) of this Item with respect to compensation for
the first fiscal year commencing on or after the date the registrant
first becomes subject to the requirements of Section 13(a) or 15(d) of
the Exchange Act (15 U.S.C. 78m or 78o(d), and may omit such pay ratio
disclosure from any filing until it the filing of its annual report on
Form 10-K for such fiscal year or, if later, the filing of a proxy or
information statement relating to its next annual meeting of
shareholders (or written consents in lieu of such a meeting) following
the end of such year, provided that, such pay ratio disclosure must, in
any event, be filed as provided in General Instruction G(3) of Form 10-
K (17 CFR 249.310) not later than 120 days after the end of such fiscal
year.
    Instruction 6 to Item 402(u)--Emerging growth companies. A
registrant is not required to comply with paragraph (u) of this Item if
it is an emerging growth company as defined in Section 3(a) of the
Exchange Act (15 U.S.C. 78c(a)).

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
3. The general authority citation for part 249 is revised to read as
follows:

    Authority:  15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat.
1904; and Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309, unless
otherwise noted.
* * * * *
0
4. Form 8-K (referenced in Sec.  249.308) is amended by revising
paragraph (f) of Item 5.02, designating paragraph (f) as (f)(1) and
adding paragraph (2).
    The revisions and additions read as follows:

    Note:  The text of Form 8-K does not, and this amendment will
not, appear in the Code of Federal Regulations.

Form 8-K
* * * * *

Item 5.02  Departure of Directors or Certain Officers; Election of
Directors; Appointment of Certain Officers; Compensatory Arrangements
of Certain Officers.

* * * * *
    (f)(1) * * *
    (2) As specified in Instruction 4 to Item 402(u) of Regulation S-K
(17 CFR 229.402(u)), disclosure under this Item 5.02(f) with respect to
the salary or bonus of a principal executive officer shall include pay
ratio disclosure pursuant to Item 402(u) of Regulation S-K calculated
using the new total compensation figure for the principal executive
officer. Pay ratio disclosure is not required under this Item 5.02(f)
until the omitted salary or bonus amounts for such principal executive
officer become calculable in whole.
* * * * *

    Dated: September 18, 2013.

    By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2013-23073 Filed 9-30-13; 8:45 am]
BILLING CODE 8011-01-P