SEC proposes linking executive compensation with performance

New rules proposed by a divided SEC would require public companies to disclose the relationship between executive compensation and the company’s financial performance.

The rulemaking is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, P.L. 111-203. The proposed rules are designed to give shareholders more information when they vote to elect directors and make advisory votes on executive compensation.

The proposed disclosures would be required in proxy or information statements in which executive compensation disclosure is required. The SEC voted 3—2 to propose the rules.

Under the proposal, companies would be required to disclose in a table executive pay and performance information for themselves as well as companies in a peer group. Companies would be required to tag the information in an interactive data format.

Companies would be required to disclose executive compensation actually paid for their principal executive officer, with adjustments for pensions and equity awards. Companies also would be required to disclose the average compensation paid to their remaining executive officers.

For performance measures, companies would be required to report a total shareholder return metric for themselves and for companies in a peer group.

Comments can be made within 60 days of publication of the proposal in the Federal Register at the SEC’s website.