October 16, 2013
I am writing this letter on behalf of FEI Company (NASDAQ: FEIC) to outline various alternatives to the Commissions proposed rules relating to CEO pay ratio disclosures. By way of background, FEIC is based in Hillsboro, Oregon and is a leading supplier of scientific instruments for nanoscale imaging. Our revenues in 2012 were $891 million and we employ approximately 2,600 employees of which about 30% are based in the US. We also have manufacturing operations in two locations in Europe and sales and service support in over 50 countries. Many of our employees have specialized technical skills and we compete aggressively with U.S. and foreign companies to attract the best people. All of our employees are paid living wages with a full complement of benefits, including health coverage and retirement plans.
Our concern relating to the CEO pay ratio disclosures is the complexity of arriving at the median wage globally, given the vast array of salaries, wages, incentive compensation and perquisites, combined with the impact of currency fluctuations for a company with a worldwide footprint. In many cases, our international employees have benefits that greatly exceed those of our CEO, including leased cars, more generous paid time off regimes, enhanced medical benefits as well as defined benefit pension plans. These differences in benefits, which we offer to be competitive in local markets, may result in different base compensation compared to a similar employee in the United States. We do not track these elements on an individual level and doing so would be very burdensome. In addition to varying benefits in different labor markets around the world, the cost of living also varies significantly, and including international data would skew the comparison to U.S. compensation. Thus we believe that international employees should be excluded from the compilations.
Our estimate is that it will take over 1,000 hours of internal time to develop the database and methodology to derive the information as currently proposed to come up with a global view of the median pay for our entire workforce. On an annual basis we would need over 500 hours to support an ongoing effort. This represents an approximate cost of over $250,000 on an initial basis and $100,000 on an ongoing basis, to produce the information. In addition it will require resources that can be used much more productively to enhance our products and process to serve our customers better.
Our suggestions to arrive at a more practicable solution are:
-Define employees as only those employed by the U.S. parent organization and all U.S. based subsidiaries. In effect, this would be all employees for whom we are required to report compensation to the Internal Revenue Service (IRS). Companies that have international employees could provide a narrative describing the non-U.S. workforce, including a general outline of pay and benefit practices internationally, so that readers have an understanding of the elements of compensation. Limiting the definition to just U.S.-based employees enables a more apples to apples comparison and significantly reduces the effort to arrive at accurate and meaningful data. It also removes the complexities from the impact due to currency fluctuations and the vastly different practices due to custom or law in varying geographic regions. In addition, focusing the data on U.S. employees addresses the objectives of the proponents of the law, who are primarily concerned with pay inequities in the U.S.
-We support the view that compensation of employees should be from Box 1 of IRS form W-2. This is the compensation reported to the IRS for all U.S.-based employees. It is done on an automated basis, is auditable, and is readily attainable. If we were able to use this as the sole database, compliance would be much easier. Box 1 includes wages, salaries, bonuses and stock compensation and is a good standard and measure of what a person earns. Defining compensation as anything other than IRS form W-2 Box 1 would require development of an additional database to track multiple elements of compensation.
-Compensation for the CEO should be defined as that used in the total compensation tables from the proxy statement filed annually with the SEC. While this may be different from Box 1 of IRS form W-2, it is a method that has been adopted, has consistency of treatment and is an established practice for constructing the data for the CEO. Comparisons of this amount to the median of U.S.- based employees Box 1 from IRS form W-2 is inherently logical and would perhaps be useful to some users of the financial reports.
-We support the view of excluding those individuals no longer employed at year-end. We would likely not seek to annualize salary data for part-year employees as doing so actually increases workload. However, we do see the practical limitation for some companies so we encourage the SEC to allow flexibility in the application of the rule.
-We believe it is best to have a consistent application of the ratio and that the Commission should define it as the CEO pay divided by the median of all U.S.-based employees. This results in a factor rather than a fraction. Doing the inverse or allowing the inverse is both confusing and illogical.
If the Commission were to adopt rules consistent with our comments above we believe the workload to comply would be much easier, perhaps dropping by 90%, while preserving the intent of the legislation in adopting the requirement. However, inclusion of international employees greatly increases the effort and in our opinion does not enhance the disclosures. We strongly encourage the Commission to adopt rules that are relevant and easy to put in place, maintain and audit.
Thank you for this opportunity to share our views.