SEC Requires Public Companies to Disclose Pay-Versus-Performance Measures

The U.S. Securities and Exchange Commission (SEC) has issued a long-awaited final rule that significantly expands executive pay disclosures by publicly traded U.S. companies. The new disclosures, which will provide detailed information about the performance metrics companies use to determine executive compensation payouts, are effective for the 2023 proxy season.

The Pay Versus Performance Rule was issued on Aug. 25 along with the Pay Versus Performance Fact Sheet summarizing its provisions.

The rule implements requirements under 2010's Dodd-Frank Wall Street Reform and Consumer Protection Act. The SEC first proposed a pay-versus-performance disclosure rule in 2015 and reopened the comment period on the proposal in January, 2022.

New Disclosures

In addition to the executive-pay summary compensation table that is currently required in company proxy statements, large companies now must provide, in a new table, a five (5) year history of pay versus performance-related metrics, with a shorter, three-year (3) reporting requirement for smaller companies.

In this table, a company must disclose financial performance measures for specified years, including:

• Total shareholder return (TSR).
• TSR of companies in its peer group.
• Net income.
• A company-selected financial performance measure that the company determines is the most important metric it uses to link compensation actually paid to its named executive officers with company performance.

Effective Dates

Companies must begin to comply with the new disclosure requirements in proxy and information statements for fiscal years ending on or after Dec. 16, 2022.

[Source: SHRM.org] [9/2/22]