On April 29, 2015, the Securities and Exchange Commission announced the long-awaited proposal to disclose the relationship between executive pay and a company’s financial performance (the Pay to Performance Proposal). Originally mandated under Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the proposed Pay to Performance rules would require public companies to disclose in proxy statements in which executive compensation information is provided the following:
- Executive compensation actually paid for the principal executive officer (which would equal total compensation, subject to adjustments for pensions and equity awards) and the average compensation actually paid to the other named executive officers. For purposes of calculating executive compensation “actually paid,” equity awards would be considered actually paid on the date of vesting and at fair value on that date, rather than fair value on the grant date as used in the summary compensation table;
- The total executive compensation reported in the summary compensation table for the principal executive officer and an average of the reported amounts in the summary compensation table for the remaining named executive officers;
- The company’s total shareholder return (TSR) on an annual basis calculated in the same manner the company currently uses for preparing its stock performance graph; and
- The TSR on an annual basis of the companies in the peer group used by a company in either its stock performance graph or in its compensation discussion and analysis.
As proposed, the Pay to Performance rules would be phased in such that companies, other than smaller reporting companies, would be required to provide the tabular information for three years in the initial proxy statement where they provide the disclosure, adding another year of disclosure in each of the following two annual proxy filings for a maximum tabular disclosure of five years. Smaller reporting companies would be required to initially provide the disclosure for two years, adding another year in their subsequent annual proxy filing for a maximum tabular disclosure of three years. Emerging growth companies and foreign private issuers would be exempt from the reporting requirements entirely. Companies would also be required to tag the disclosure in an interactive data format using XBRL.