New Pay Vs. Performance Disclosure Rules

On August 25, 2022, the SEC voted 3 to 2 to adopt final rules implementing the pay vs. performance disclosure requirement of the Dodd-Frank Act.

Last month, the Securities and Exchange Commission (SEC) adopted amendments to its pay vs. performance disclosure rules. Registrants must now disclose information to establish the relationship between executive compensation paid by a registrant and the registrant’s financial performance. The intent of the rule is to better implement a requirement of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).

“The Commission has long recognized the value to investors of information on executive compensation,” said SEC Chair Gary Gensler. “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. I think that this rule will help investors receive the consistent, comparable, and decision-useful information they need to evaluate executive compensation policies.”

Per the news release issued by the SEC at the time of the announcement (SEC Adopts Pay Versus Performance Disclosure Rules), “Specifically, the amendments require registrants to provide a table disclosing specified executive compensation and financial performance measures for their five most recently completed fiscal years. With respect to the measures of performance, a registrant will be required to report its total shareholder return (TSR), the TSR of companies in the registrant’s peer group, its net income, and a financial performance measure chosen by the registrant.

“Using the information presented in the table, registrants 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. A registrant will also be required to provide a list of three to seven financial performance measures that it determines are its most important performance measures for linking executive compensation actually paid to company performance. Smaller reporting companies will be subject to scaled disclosure requirements under the rules.”

The SEC initially proposed pay vs. performance rules disclosures in 2015 and then reopened the comment period this past January leading up to these changes.

View the final rule release.

View the SEC pay vs. performance fact sheet.

The final rule will become effective 30 days after its publication in the Federal Register.