SEC Division Of Corporation Finance Statement On Disclosure Review
On June 24, 2024, Erik Gerding the Director of the SEC’s Division of Corporation Finance made a statement regarding the SEC’s state of disclosure review. In fiscal year 2023 and continuing into 2024, the top areas of review and comment by the SEC were China-related matters, artificial intelligence, non-GAAP disclosures, management’s discussion and analysis, revenue recognition and financial statement presentation. In addition, disruptions in the banking industry, cybersecurity risks, the impact of inflation and disclosure related to or as a result of newly adopted rules (such as pay versus performance) are gaining attention by SEC review teams.
The director’s statement gives some insight into the SEC’s focus and serves as a reminder to our clients and us practitioners alike to be sure we are staying abreast of the ever-changing capital markets environment.
China Related Disclosures
A few years ago, the SEC enacted the Holding Foreign Companies Accountable Act and approved rules implementing same (see HERE). The SEC continues to
SEC Publishes New C&DI On Pay Versus Performance Rules
For the second time since the adoption of the pay versus performance rules (Pay vs. Performance) in August, 2022 (see HERE), the SEC has published guidance via new compliance and disclosure interpretations (“C&DI”). The SEC previously published 15 C&DI on the subject in February 2023 – see HERE.
The Pay vs. Performance rules require companies to provide a tabular disclosure of specified executive compensation and financial performance measures for their five most recently completed fiscal years in any proxy or information statement filed under Section 14 of the Exchange Act. With respect to the measures of performance, a company is required to report its total shareholder return (TSR), the TSR of companies in the company’s peer group, its net income, and a financial performance measure chosen by the company itself. Using the information presented in the table, companies are required to describe the relationships between the executive compensation actually paid and each of the performance measures, as well
SEC Adopts Pay Versus Performance Disclosure Rules
Following seven years of “will they or won’t they,” on August 25, 2022, the SEC adopted final rules requiring information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance (“Pay vs. Performance”). The rules were initially proposed in April 2015, and then languished for years (see HERE). On January 27, 2022, the SEC re-opened the comment period and expanded the proposal to include additional performance metrics (see HERE).
The SEC administration under Gary Gensler has been actively tackling compensation and insider trading related issues, including re-visiting executive compensation clawback rules (see HERE); publishing new guidance on disclosures and accounting for spring-loaded compensation awards (see HERE); proposing amendments to Rule 10b5-1 insider trading plans (see HERE); and proposing new share repurchase program disclosure rules (see HERE).
The amendments require companies to provide a table disclosing specified executive compensation and financial performance measures for their five most recently completed
