SEC Proposes Pay-For-Performance Rules
On Wednesday, the SEC proposed rules to require pay-for-performance disclosure as mandated by the Dodd-Frank Act. The proposal would require companies to include a new table in their proxy statements that shows compensation “actually paid” to top executives, as well as the total shareholder return (TSR), as defined in Regulation S-K, on an annual basis for the company and the peer group selected by the company for its stock performance graph or CD&A. Compensation “actually paid” is derived from the current summary compensation table, except that pension amounts are adjusted and equity awards are considered paid only when vested and are valued as of the vesting date. Companies would also be required to describe in a narrative or in graphics the relationship between the compensation “actually paid” and the company’s TSR performance data,and the relationship between the company’s TSR performance data and the TSR performance data of its selected peer group. The SEC would require these pay-for-performance disclosures to cover a five-year period (three years for smaller reporting companies). Companies would have to provide the new information for their principal executive officer and an average for the group of other named executive officers in the summary compensation table. Commissioners Gallagher and Piwowar opposed the rule, noting that it imposed an intrusive “one-size-fits-all” standard for calculating performance. Read the SEC press release and rule proposal.