A Practical Guide to the SEC’s Executive Compensation Disclosure Rules
Executive compensation disclosures in proxy statements and annual reports continue to garner attention and scrutiny by the Securities and Exchange Commission (SEC), shareholders, employees, the media and other stakeholder groups. Pay programs can be technical and multi-layered, increasing the challenge of explaining these programs in clear, credible, understandable terms.
Investors and other audiences focus not just on pay amounts, but also on the perceived degree of alignment between pay and relevant measures of performance. At most companies, investors not satisfied with this alignment or with other aspects of the pay program, its administration and outcomes, annually can register this disapproval via negative Say on Pay votes, votes against (or withheld from) members of the board compensation committee, or both. Occasionally, investors have been known to vote against approval of, amendments to and replenishment of equity pay plans. However expressed, such opposition can opportunistically be seized upon by activists and unsolicited acquirers to bolster support for their campaigns.
In addition to companies telling their version of their “Pay for Performance” (PvP) stories, proxy advisors and many investors have their own methodology for determining such alignment or misalignment.
Against this backdrop, the SEC now requires most companies to provide additional, more prescriptive “Pay versus Performance” (PvP) data and related information, adding yet another window into this topic. This new data may support, or conflict with, many companies’ traditional PfP stories.
What IS clear, since PvP is the first section of proxies requiring XBRL data tagging, is that this new data will be easily analyzed, and it’s highly likely that activists and others may create lists of positive and negative outliers, targeting the latter group for focused activism campaigns, lawsuits and other tactics.
So the stakes are higher than ever, and companies are challenged to simultaneously meet expanded regulatory disclosure requirements, as well rising investor expectations – to not just “disclose” but also to “explain” their compensation programs -- the all-important “telling of the story”. This updated handbook, written by experts at Gibson, Dunn & Crutcher LLP and at WTW, provides an overview for public companies navigating the SEC’s compensation disclosure rules, other regulatory requirements and the views of proxy advisory firms. This handbook also offers practical advice to help companies produce understandable disclosures that thoughtfully tell their stories about executive compensation.
This handbook is but one of the tools we provide clients in telling their executive compensation stories, along with:
- Regular webinars, white papers and other forms of thought leadership on this and related topics
- Confidential and complimentary reviews of your past disclosures, and consultative conversations about emerging best practices with our team of corporate governance experts
- Suggestion of design, graphic and other visual elements to highlight key aspects of your story and make it more engaging and impactful, including free access to our industry-leading “Guide to Effective Proxies”
- Collaborative drafting tools to facilitate your team collaboration (Active Disclosure)
- Enhanced web-hosting services for the digital versions of your disclosure
See Appendix A to this handbook for a copy of the full text of the rules, as amended through February 14, 2023.
See Appendix B for the Compliance and Disclosure Interpretations issued through February 10, 2023 in connection with these rules.