Human Resources Certification Institute (HRCI) Practice Exam

To comply with SEC rules at your place of business, you should do which of the following?

1. Link executive pay to monthly performance measures.

2. Disclose executive pay rates to all employees.

3. Publish the ratio of executive to employee pay to shareholders.

4. All of the above.

The correct answer is: Publish the ratio of executive to employee pay to shareholders.

Publishing the ratio of executive to employee pay to shareholders is a key requirement under the SEC rules, particularly in the context of promoting transparency and accountability in corporate governance. This ratio helps shareholders understand the disparity between executive compensation and the compensation of the average employee, fostering discussions on fairness and equity within the organization. By emphasizing this ratio, the SEC aims to provide shareholders with clear and comparable data that informs their investment decisions and governance practices. This disclosure contributes to a culture of openness regarding compensation practices and assists in holding both executives and the board accountable for their decisions concerning pay structures. Other potential requirements, such as linking executive pay to specific performance measures or disclosing executive compensation rates to all employees, may not be mandated in the same way or may be more related to best practices rather than firm SEC regulations. Thus, while those actions could be beneficial, they do not align as directly with SEC compliance as the requirement to publish the executive-to-employee pay ratio.