SEC Issues Guidance On New Pay Versus Performance Disclosure Rules
On February 10, 2023, the SEC published 15 new Compliance and Disclosure Interpretations (C&DI) related to the pay versus performance (“Pay vs. Performance”) disclosure rules which were, in turn, adopted in August, 2022 (see HERE) after seven years in the process.
The rules require companies to provide a table disclosing 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 will be 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 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 company’s TSR and the
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
SEC ReOpens Comment Period For Pay Versus Performance
On January 27, 2022, the SEC re-opened the comment period on proposed rules under the Dodd-Frank Act requiring disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance (“Pay vs. Performance”). The rules were previously proposed in April 2015, and have languished since then (see HERE). In addition to re-opening the comment period on the 2015 proposed rules, the SEC has expanded the proposal to include additional performance metrics.
The SEC administration under Gary Gensler has been actively tacking compensation and insider trading related issues recently 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).
Background
Section 953(a) of the Dodd-Frank Act added Section 14(i) to the Securities Exchange Act of 1934
Proposed Amendments To Disclosure Of Hedging Policies For Officers, Directors And Employees
On February 9, 2015, the SEC issued proposed rules that would increase corporate disclosure of company hedging policies for directors and employees in annual meeting proxy statements. The new rules are part of the ongoing rule-making requirements mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). In particular, the new rule would implement Section 14(j) of the Securities Exchange Act of 1934 (“Exchange Act”), which requires annual meeting proxy or consent solicitation statements to disclose whether employees or members of the board are permitted to purchase financial instruments, such as options, swaps, collars and the like, to hedge price decreases in the company securities.
The proposed rules regulate disclosure of company policy as opposed to directing the substance of that policy or the underlying hedging activities. In fact, the rule specifically does not require a company to prohibit a hedging transaction or otherwise adopt specific policies. The rule would require disclosure about whether directors, officers and
