SEC adopts ‘pay versus performance’ disclosure rules

By Bryan Strickland

The SEC on Thursday adopted amendments that require specific disclosures about the relationship between a public company's executive compensation and its financial performance.

Registrants must begin to comply in proxy and information statements that are required to include Item 402 executive compensation disclosure for fiscal years ending on or after Dec. 16, 2022.

The "pay versus performance" rules were first proposed in 2015 in response to a mandate in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, P.L. 111-203.

The amendments require public companies to provide a table of information for their five most recently completed fiscal years featuring their total shareholder return (TSR), the TSR of companies in the registrant's peer group, and their net income. Most companies also must report a financial performance measure chosen by the registrant.

Based on the table, companies will be required to describe the relationships between the executive compensation actually paid and each of the performance measures, as well as the relationship between the registrant's TSR and the TSR of its selected peer group (if applicable).

Companies also will be required to provide a list of three to seven "most important performance measures" that best link executive compensation actually paid to company performance.

The requirements are scaled down for smaller reporting companies. For example, they must report only their three most recent fiscal years and are not required to report peer groups' TSR.

"The commission has long recognized the value to investors of information on executive compensation," SEC Chair Gary Gensler in a news release. "Today's rule makes it easier for shareholders to assess a public company's decision-making with respect to its executive compensation policies. I am pleased that the final rule provides for new, more flexible disclosures that allow companies to describe the performance measures it deems most important when determining what it pays executives."

Most companies will be required to provide the information for three years in the first proxy or information statement in which they provide the disclosure, adding another year of disclosure in each of the two subsequent annual filings. Smaller reporting companies will initially provide information for two years, adding an additional year in the next annual filing.

— To comment on this article or to suggest an idea for another article, contact Bryan Strickland at

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