On April 29, 2015, the Securities and Exchange Commission issued proposed regulations to implement section 14(i) of the Securities Exchange Act of 1934, as added by section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed regulations would enhance the disclosure of executive compensation to include a comparison of executive pay to the financial performance of a registrant. The proposed regulations, found in Release No. 34-74835, require a registrant to disclose executive pay and performance information for itself and companies in its peer group, and would not apply to “emerging growth companies” (i.e., an issuer with total annual gross revenues of less than $1 billion during their most recently completed fiscal year).
The disclosure would require a new table in a registrant’s compensation disclosure displaying the “compensation actually paid” to the CEO and the average “compensation actually paid” to the other named executive officers over a five year period (three years for smaller reporting companies (i.e. certain issuers with a public float of less than $75 million as of the last business day of its most recently completed second fiscal quarter)), and the annual total shareholder return of the registrant and its selected peer group during the same period.
The compensation amounts disclosed for the applicable period would include both the total paid as reported in the Summary Compensation Table and a new “compensation actually paid” analysis, which would value stock awards, including stock options, in the year of vesting at the fair value as of the vesting date, but would not include the aggregate change in the actuarial present value of the CEO or other named executive officers’ accumulated benefit under a defined benefit plan.
As the measure of performance, a registrant also would be required to report its total shareholder return (TSR) and the TSR of companies in a peer group selected by the registrant. The TSR disclosed in the new table would be annual for each of the three or five years, as applicable.
The proposed regulations would be phased in over time, with registrants only required to show three years of compensation in the first year (two for smaller reporting companies), and adding an additional year of compensation disclosure each year up to a total of five years (three for smaller reporting companies). The proposed regulations will now be subject to a 60-day comment period, with comments due on or before July 6, 2015.