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SEC rule amendments require proxy disclosure of executive pay versus performance
SEC Update
09 September 2022
On August 25, the SEC adopted rule amendments that require registrants to disclose, in proxy or information statements in which executive compensation disclosure is required, information showing the relationship between compensation actually paid to their named executive officers and the company’s financial performance. Emerging growth companies, foreign private issuers, and registered investment companies are not subject to the new requirements, which apply in scaled form to smaller reporting companies.
Under a new paragraph (v) to Item 402 of Regulation S-K, registrants are required to disclose in a table the compensation actually paid to their named executive officers and specified financial performance measures for five fiscal years (three years in the case of smaller reporting companies), subject to a phase-in period. The tabular presentation must be accompanied by a clear description of the relationships for each fiscal year between such compensation and the financial performance measures. The registrant also must present a tabular list of the most important financial performance measures used to link such compensation to company performance for the most recently completed fiscal year.
The SEC’s objective is to make pay-versus-performance information “clear and easy for investors to evaluate” in order “to facilitate investors’ consideration of the alignment between pay and performance” when voting on the election of directors or approval of executive compensation or other compensation-related matters, or when making investment decisions. Although the SEC states that Item 402(v) largely requires registrants to “repackage” executive compensation information already disclosed in proxy statements, or information underlying those disclosures, rather than to produce substantial additional information, compliance with the new mandate will entail significant disclosure judgments.
The pay-versus-performance disclosure is required in filings for fiscal years ending on or after December 16, 2022, which will include 2023 proxy statements filed by registrants with a December 31 fiscal year-end.
The amendments will become effective on October 11, 2022. The SEC’s lengthy release (No. 34-95607) can be viewed here and the related SEC fact sheet here.
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Authored by Alan Dye (co-editor), Richard Parrino (co-editor), Alex Bahn, Martha Steinman, Michael Frank, Kevin Greenslade, and Michael McTiernan.
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