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. CEO to median employee pay ratio disclosure, while not directly a voting issue, provides another data point in the evaluation of the appropriateness of executive pay. In extreme cases, 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.
So the stakes are high, and companies are challenged to simultaneously meet technical 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 provides an overview for public companies navigating the SEC’s compensation disclosure rules, anticipated rulemaking mandated by the Dodd-Frank, Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) 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 disclosures
See Appendix A to this handbook for a copy of the full text of the rules, as amended through October 1, 2020.
See Appendix B for the Compliance and Disclosure Interpretations issued through October 1, 2020 in connection with these rules.