SEC updates executive pay v. performance disclosure rules


The Division of Corporation Finance of the SEC recently updated their Compliance and Disclosure Interpretations (C&DIs) related to Regulation S-K that provide additional clarification to the final rule on pay-versus-performance (PVP) disclosures. These new disclosures apply to public companies that have fiscal years ending on or after Dec. 16, 2022. Companies with Dec. 31 year-ends will be required to include these disclosures in their soon-to-be released proxy or information statements later this spring.


The C&DIs released on Feb. 10, 2023, come as most public companies are in the process of drafting their 2023 proxy statements. Key takeaways from these include:

  1. PVP disclosures are not required in Form 10-K annual reports but instead must be included in the proxy statement and information statement that require executive compensation disclosures.
  2. Companies with more than one principal executive officer (PEO; typically meaning the chief executive officer) serving during the year are required to present each PEO’s compensation in a separate column within the PVP table. Companies are permitted to aggregate PEO compensation in describing the relationship between compensation actually paid (CAP) and total shareholder return (TSR), net income and the company-selected measure (CSM), so long as such aggregation is not misleading.
  3. The company’s stock price may be used as a CSM if it is used as a measure to link CAP to company performance. Examples include the use of share price in calculating the size of a bonus pool or as a market condition applicable to an incentive award plan. Similarly, relative total shareholder return (rTSR) or other financial measures may be used as a CSM as long they are being used to link CAP to company performance.
  4. The CSM must be based on the most recently completed fiscal year and not a multi-year performance period. For example, one-year rTSR may be used as a CSM, but three-year cumulative rTSR may not be used in this way.
  5. Peer group companies disclosed in the compensation discussion and analysis (CD&A) that were actually used to help determine executive compensation can be used as the TSR peer group even if they weren’t used to “benchmark” executive compensation.
  6. A detailed footnote that reconciles the summary compensation table (SCT) to the CAP column of the PVP table is required to be presented for the most recent fiscal year and must include all adjustments explicitly specified in the rules. This footnote is also required for years other than the most recent fiscal year if the disclosure is material to an investor’s understanding of the information reported in the PVP table. Additionally, during the initial PVP disclosure, all registrants are required to provide a detailed footnote for each period presented in the PVP table.
  7. The change in value of equity awards granted to first-time named executive officers (NEOs) in years prior to their appointment as an NEO is required to be included in the calculation of CAP even though such awards may not have been included in the SCT.
  8. Peer group TSR must be presented for the peer group disclosed in the CD&A that year. In other words, a company’s peer group from the 2020 CD&A would be used for 2020 TSR, their 2021 CD&A peer group would be used for 2021 TSR, and so on.

Companies should review the updated SEC guidance with their relevant internal and external stakeholders to ensure previously completed calculations reflect the final procedures, particularly for calendar year-end filers that are in the process of drafting their initial proxy statements. For more information on the PVP disclosures, see our article covering the issuance of the SEC’s final rules.



Eric Gonzaga

Eric Gonzaga is a Principal and practice leader for the Human Capital Services (HCS) group in Minneapolis.

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