SEC finalizes pay-versus-performance disclosure 

Mark Shannon
 SEC finalizes pay-versus-performance disclosure Insight

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?

Pay-versus-performance disclosure requirements

Section 14(i) of the Exchange Act, a Dodd-Frank addition, requires the SEC to create rules mandating disclosure, in proxy or other annual meeting consent solicitation material, of information that shows the relationship between executive compensation actually paid and the issuer’s financial performance. Pay-versus-performance disclosure will not be deemed incorporated by reference into any Securities Act or Exchange Act filing unless the registrant specifically incorporates it. A summary of the final rules, originally proposed in 2015 and then subject to additional public comment in 2022, and additional observations follow.


Registrants must provide pay-versus-performance disclosure in their annual proxy or information statement that includes executive compensation disclosure under Item 402 of Regulation S-K. Smaller reporting companies (SRCs) can use scaled disclosure. Emerging growth companies, foreign private issuers, and registered investment companies are exempt.

Crowe observation: In the final rules, business development companies (BDCs) are deemed the same as issuers other than registered investment companies; therefore, BDCs are subject to the new disclosure requirements.


Registrants must provide tabular disclosure for the most recent five years (three years for SRCs) of the following:
  • Principal executive officer (PEO) and named executive officer (NEO) compensation:
    • Total compensation, which is the same amounts as in the summary compensation table, of the PEO and the average total compensation of other NEOs
    • Compensation actually paid to the PEO and the average actual compensation paid to the other NEOs

Crowe observation: Compensation actually paid adjusts total compensation reported in the summary compensation table for:

  • Share-based compensation
  • Above-market or preferential earnings on deferred compensation that is not tax qualified
  • Pension costs

In each case, the final rule specifically defines how to calculate the adjustments.

  • Financial performance measures:
    • Total shareholder return (TSR)
    • TSR of the entity’s peer group (not required for SRCs)

Crowe observation: The rules require a weighted peer group TSR based on market capitalization at the beginning of the TSR period. The peer group should be the same as depicted either in the entity’s performance graph disclosure (Item 201(e) of Regulation S-K) or in the entity’s CD&A benchmarking practices disclosure.

  • Net income
  • The entity-specific, company-selected financial performance measure (company-selected measure) that is most important to the link between compensation actually paid and company performance for the most recently completed fiscal year (not required for SRCs)

Crowe observation: The final rule specifies that registrants can elect to provide supplemental measures of compensation or financial performance (for example, in the tabular disclosure or in other disclosure) and other supplemental disclosures, assuming the additional measure or disclosure is “clearly identified as supplemental, not misleading, and not presented with greater prominence than the required disclosure.”

The rules specify the following format for the tabular disclosure:

Year Summary compensation for PEO Compensation actually paid to PEO Average summary compensation for other NEOs Average compensation actually paid to other NEOs Value of initial fixed $100 investment based on:  
TSR TSR of peer group*
Net income [Company-selected measure]*

*Not required for SRCs
Source: SEC final rule, “Pay Versus Performance,” 2022, 

In addition to the tabular disclosure, an entity must provide:

  • A clear description (graphic, narrative, or both) of the relationship between the executive compensation actually paid to the PEO and NEOs and the tabular financial performance metrics for the five most recently completed fiscal years (three years for SRCs).
  • A description of the relationship between the entity’s cumulative TSR and cumulative peer group TSR (not required for SRCs).
  • A list of up to seven most important financial performance measures used to link compensation to performance (not required for SRCs). A registrant also may elect to include nonfinancial measures in the list.

Crowe observations: The list of important financial performance measures does not need to be ranked in order of importance. No minimum number of measures exists (for example, if the entity uses fewer than three measures, it is required to disclose only those that are used); however, seven measures is the maximum. In addition, the company-selected measure or the list might include non-GAAP measures. Non-GAAP measures included in the pay-versus-performance disclosure are not subject to the additional requirements of Regulation G or Item 10(e) of Regulation S-K; however, the entity must disclose how the measure is calculated from the audited financial statements.


The final rule limits the number of periods presented in the first applicable proxy or information statement. Specifically, non-SRC registrants must provide three years of disclosure in the first applicable filing, adding another year of disclosure in each of the two following years. SRCs must provide two years of disclosure in the first applicable filing, adding an additional year in the next filing.

Crowe observation: A newly public company need not provide disclosure for any year it was not a reporting company under Section 13(a) or Section 15(d) of the Exchange Act.


Registrants other than SRCs must use inline extensible business reporting language (XBRL) to tag pay-versus-performance disclosure. SRCs must tag pay-versus-performance disclosure starting with the third filing that contains the disclosure.

Near-term consideration for management

  • Timing. How will the entity ensure it will be ready to provide pay-versus-performance disclosures in its proxy and information statements filed in calendar year 2023?
  • Content. How will management gather the appropriate data to prepare pay-versus-performance disclosures?
  • Controls and procedures. What disclosure controls and procedures are needed to comply with the new disclosure rules?
  • Governance. Has management considered providing draft disclosures in advance to the appropriate board members? How will review and feedback timelines change given the additional disclosures?

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Mark Shannon
Mark Shannon
Partner, National Office