SEC registrants must comply with new pay-versus-performance disclosure requirements for fiscal years ending on or after Dec. 16, 2022.
On Aug. 25, 2022, the Securities and Exchange Commission (SEC) finalized pay-versus-performance disclosure rules mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). The rules will require more transparent information about how executive compensation links to company performance. Registrants must comply with the new requirements in proxy and information statements that include Regulation S-K Item 402 executive compensation disclosure for fiscal years ending on or after Dec. 16, 2022.
Near-term considerations for board directors
- Philosophy. How does the entity's compensation philosophy consider the financial performance and nonfinancial measures most important to executive compensation? Do those measures align with the entity’s overall strategy and identified risks and opportunities?
- Say on pay. Have the results of the entity’s most recent say-on-pay vote been considered in the entity’s compensation philosophy?
- Compensation discussion and analysis (CD&A). Has the entity considered whether its pay-versus-performance disclosure, including identification of relevant financial performance and nonfinancial measures, will be consistent with the entity’s CD&A?
- Controls and procedures. Does the pay-versus-performance disclosure include any new information (for example, compensation actually paid, how that links to the most important financial performance metric, and discussion of relevant financial performance and nonfinancial measures that might be in addition to what an entity currently discloses)? Has the entity designed and placed into operation effective disclosure controls and procedures for any new disclosure?