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New Disclosure Requirements For The 2023 Proxy Season – Executive Remuneration


Looking ahead to the upcoming 2023 proxy season, the U.S.
Securities and Exchange Commission (“SEC”) has adopted
new compensation disclosure obligations that will require
significant thought, preparation, and lead time. These obligations
can be found in new Item 402(v) of Regulation S-K, which implements
Section 14(i) of the Exchange Act.

Congress added Section 14(i) through the Dodd-Frank
Act.1 Section 14(i) directed the SEC to adopt rules
requiring public companies to provide a clear description of the
relationship between executive compensation actually paid and the
company’s financial performance, or what is commonly referred
to as “pay-versus-performance.” At their core, the new
disclosure requirements involve a comparison of executive
compensation against the company’s total shareholder return,
net income, and a company-selected measure, along with insight into
the company’s use of financial performance measures when
setting executive compensation. The SEC’s 233-page release is
available here. The SEC has also issued a press release and a brief fact sheet.

Item 402(v) applies to all reporting companies (including
business development companies) except foreign private issuers,
registered investment companies, and emerging growth companies. As
explained below, smaller reporting companies (“SRCs”) are
only partially subject to Item 402(v). The new executive
pay-versus-performance compensation disclosures will be required
beginning in 2023 for companies with a calendar-year-end fiscal
year. However, the disclosures are only required in proxy and
information statements.2 Item 402(v) has three major
components, each of which is summarized below.3

Pay-Versus-Performance Disclosure Table and

Item 402(v) requires the following pay-versus-performance
disclosure table, with the asterisked items indicating portions of
the table from which SRCs are exempt:


Much of this table can be derived from or is related to other
Regulation S-K requirements.5 When selecting a peer
group, a company should choose either the same peer group used for
purposes of Item 201(e) of Regulation S-K or a peer group used in
the Compensation Discussion and Analysis to disclose the
company’s compensation benchmarking practices.

As the SEC explained in its guidance, if the peer group is not a
published industry or line-of-business index, the identity of the
issuers in the group must be disclosed in a footnote. A company
that has previously disclosed the composition of issuers in its
peer group in prior filings with the SEC would be permitted to
comply with this requirement by incorporation by reference to those
filings. Finally, suppose a company changes the peer group used in
its pay-versus-performance disclosure table from the one used in
the previous fiscal year. In that case, it will only be required to
include tabular disclosure of peer group total shareholder return
(“TSR”) for that new peer group (for all years in the
table). Still, it must explain, in a footnote, the reason for the
change and compare the company’s TSR to that of both the old
and the new group.

Calculating executive compensation actually paid will likely be
the most time-consuming step in preparing the table.6
The calculation begins with the total compensation reported in the
Summary Compensation Table (“SCT”), followed by three

  • For pension benefits, companies that are not SRCs must
    (1) deduct from the SCT amount the aggregate change in the
    actuarial present value of the executive’s accumulated benefit
    under all defined benefit and actuarial pension plans and (2) add
    back the aggregate of the service cost and prior service

  • For equity awards, companies must deduct the equity
    award amounts reported in the SCT and then include a specially
    calculated amount.8

  • Executive compensation actually paid must also include
    above-market or preferential earnings on deferred
    that is not tax-qualified.

Companies should consult Item 402(v) for footnote disclosure
requirements related to these calculations.9

Tabular List of Financial Performance

In addition to the pay-versus-performance disclosure table,
companies (but not SRCs) are also required to disclose an
unranked, tabular list of at least three, and up to seven,
financial performance measures, which in the company’s
assessment represent the most important financial performance
measures used by the company to link compensation actually paid to
the company’s NEOs, for the most recently completed fiscal
year, to company performance. Companies can disclose a single
tabular list or multiple lists broken down across (1) the PEO and
the remaining NEOs or (2) the PEO and each NEO. The tabular list
may also include nonfinancial measures if the company considers
them among the most important.

The number of performance measures is capped at seven. A company
that considers fewer than three financial performance measures when
it links executive compensation paid during the fiscal year to
company performance will be required to disclose only the number of
measures it actually considers.

The company-selected measure included in the
pay-versus-performance disclosure table must be a
financial performance measure from this tabular list. In
the company’s assessment, it represents the most important
financial performance measure that is not otherwise required to be
disclosed in the table, and is used by the company to link
compensation paid to the company’s NEOs for company performance
for the most recently completed fiscal year, to company
performance. The company-selected measure can be updated from one
filing to the next. Companies that do not use any financial
performance measures to link executive compensation actually paid
to company performance or that only use measures already required
to be disclosed in the pay-versus-performance disclosure table
would not be required to disclose a company-selected measure or its
relationship to executive compensation actually paid. Companies are
not required to provide the methodology used to calculate the
measures included in the tabular list or the methodology used to
calculate the company-selected measure.

Graphical or Narrative Relationship

Using the information in the pay-versus-performance disclosure
table, companies are required to provide clear descriptions of two
key relationships. First, companies must provide a clear
description of the relationship between the executive compensation
actually paid to the PEO and the average of the executive
compensation actually paid to the other NEOs and the company’s
(1) cumulative total shareholder return, (2) net income, and (3)
company-selected measure. Second, companies must clearly describe
the relationship between the company’s TSR and that of the
company’s peer group. The description of these relationships
must cover the company’s five most recently completed fiscal

Companies may elect to provide this information in graphical
form, in narrative form, or a combination of the two. The SEC
encourages companies to use the format that most clearly provides
information to investors about the relationships, based on the
nature of each measure and how it is associated with executive
compensation actually paid. For example, the SEC noted that the
required relationship disclosure could include a graph providing
executive compensation actually paid and change in the financial
performance measures (e.g., TSR, net income, or company-selected
measure) on parallel axes and plotting compensation and such
measures over the required time period. Alternatively, the required
relationship disclosure could include narrative or tabular
disclosure showing the percentage change over each year of the
required time period in both executive compensation actually paid
and the financial performance measures, together with a brief
discussion of how those changes are related.

Transitional Relief12

Companies must generally provide three years of the required
information in the first proxy or information statement in which
they provide the disclosure. After that, companies will add another
year of disclosure in each of their two subsequent filings, thereby
bringing the total to five. SRCs may provide only two years of this
information in their first proxy or information statement, adding
an additional year of disclosure in the subsequent proxy or
information statement.


1 Dodd Frank Act § 953(a).

2 The new disclosures are not mandated in other filings
where disclosure under Item 402 is required, such as Form 10-K or a
registration statement under the Securities Act. Item 402(v)
disclosures will also not be deemed to be incorporated by reference
into any filing under the Securities Act or the Exchange Act,
except to the extent a company chooses to do so.

3 SRCs should consult Item 402(v)(8) to understand the
more limited application of Item 402(v).

4 See Item 402(v)(1)-(4).

5 For example, the term “PEO” refers to the
company’s principal executive officer, which is defined in Item
402(a)(3) along with the term “named executive officer”
(“NEO”). Likewise, total shareholder return is defined in
Item 201(e). The company-selected measure is discussed

6 See Item 402(v)(2)(iii).

7 These amounts should be calculated in accordance with
U.S. GAAP, including FASB ASC Topic 715.

8 SeeItem

9 See Item 402(v)(3)-(4).

10 See Item 402(v)(6).

11 See Item 402(v)(5).

12 See Instruction 1 to Item 402(v).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.


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