On April 29, the SEC proposed rules that would require most publicly traded companies to describe in detail the relationship between their financial performance and executive compensation actually paid.
The rules, which were designed to comply with the Dodd-Frank Act, would require securities issuers to use a new table for disclosure of:
- Executive compensation actually paid to the principal executive officer, as well as the average compensation paid to other “named executive officers,” with specified adjustments for pension benefits and equity awards.
- Total shareholder return (“TSR”), which is a function of annual dividends and share price appreciation.
- TSR for similar securities issuers in a peer group that each disclosing registrant must identify.
Each registrant would also need to describe the relationship between TSR and executive compensation, as well as the relationship between its own TSR and that of its peer group, using narrative text and/or graphic measures.
All securities issuers would have to include disclosures in proxy or information statements in which executive compensation disclosure is mandated, including proxies for director elections or annual meetings, Form 10-K annual reports and all registration statements.
Other Key Aspects
Some of the other key features of the new rules are as follows:
- Companies would have to tag disclosures using XBRL interactive formats.
- The rules would apply to all reporting companies, except for foreign private issuers, registered investment companies and emerging growth companies, as defined by the SEC.
- Pertinent disclosures would be required for the last five fiscal years, except that smaller reporting companies would only be required to cover the last three years.
- Existing smaller reporting companies would be required to provide only two years of data in their first required disclosure, and other existing issuers would be required to provide only three years of data in their first disclosure (and four years of data in their second reporting year).
- Smaller reporting companies would not be required to present TSR peer group data and would only have to use XBRL formatting starting with their third required disclosure filing.
For a more detailed examination of the entire “pay versus performance” regulatory plan, please see SEC Release 34-74835 at http://www.sec.gov/rules/proposed/2015/34-74835.pdf.
The SEC has invited public comment on its proposals. Comments must be received on or before July 6, 2015, therefore making it possible that the final rules could be adopted by the SEC in time for the 2016 proxy season.