According to the WSJ, 2016 saw the biggest gap since 2009 between non-GAAP pro forma results and GAAP results. But non-GAAP measures are not just proliferating in earnings releases, they are also proliferating in proxy statements. The WSJ article reports that, according to Audit Analytics, the term “non-GAAP” appeared in 58% of proxies for companies in the S&P 500 compared to only 27% five years ago. And often, the article reports, the reference to “non-GAAP” meant that the CEO was awarded higher pay than would have resulted had the reference been instead to “GAAP.”

Of course, not all of these references to non-GAAP measures were to performance metrics used to calculate pay; some may have just appeared in the CD&A. But many of them were. And, the article observes, many of those non-GAAP adjustments may be perfectly appropriate, for example, where a non-GAAP adjustment reflects a natural disaster or other event outside the company’s control. However, the article asserts, “other items that often get excluded in pro forma results, such as layoff-related charges, do seem like a reflection of management’s performance. And boards have too often shown a willingness to set awfully low bars for executives to clear. That, though, can disadvantage shareholders and wreck the idea of pay for performance.” The article reports that about 12 of the 30 DJIA component companies had non-GAAP earnings that were “well in excess” of GAAP earnings and based their executive bonuses on those non-GAAP earnings. And some companies have used non-GAAP measures other than earnings, such as economic profits, to set bonus amounts.

Interestingly, while the SEC has continued its assault on abuses of non-GAAP financial measures (see, e.g., this PubCo post and this PubCo post) not much of its energy has been focused — publicly at least — on proxy statement disclosure of non-GAAP measures as performance metrics. But will that be the SEC’s next shoe to drop?