The Staff of the Division of Corporation Finance of the Securities and Exchange Commission published a report this week discussing the principal themes and comment areas that emerged from its review of compliance by 350 public companies with the SEC’s new executive compensation disclosure rules. 

Two principal themes emerged from the Staff review. First, the Staff stated that companies should provide more focused disclosure of the how and why of specific executive compensation decisions and policies. The Staff found that while there was much discussion, there was a lack of analysis, particularly, in the Compensation Discussion and Analysis (CD&A) disclosures reviewed. Disclosure does not need to be longer or more technical, but crisper and clearer. Second, the Staff urged companies to present compensation information in a manner that will provide clear information to investors. 

In a speech delivered shortly after publication of the Staff’s report, John White, Director of the SEC’s Division of Corporation Finance, stated that in his view the “biggest shortcoming” of the first-year disclosures is that “far too often, meaningful analysis is missing....stated simply, where’s the analysis?” He went on to emphasize that what was generally lacking was a discussion of the how and why compensation philosophies and processes resulted in the specific compensation amounts disclosed. He also stated that while there was “a great deal of detail on individual compensation components” there was little discussion of “how the amounts paid or awarded under each compensation element – and how the total compensation delivered from all these elements...affected the decisions...regarding amounts paid or awarded under other compensation elements.”

In most cases, even where disclosure changes were required, the Staff comments were directed at correcting future disclosures. In a significant number of the filings reviewed, the Staff suggested making certain items disclosed more prominent by providing an emphasis on material information using plain English principles.

In many of the Staff’s comment letters, companies were asked to enhance their CD&A disclosure by including how the amounts and the elements of specific compensation were determined. The emphasis should be on the substance of compensation decisions and why the companies analyses resulted in the compensation actually paid rather than the philosophies and decision mechanics behind such compensation. The Staff also commented that the CD&A should always precede the tabular disclosure.

The report summarized Staff comments relating to other specific disclosure elements:

Performance Targets

Performance targets drew the greatest number of comments issued by the Staff. While most companies disclosed that executive compensation was conditioned on individual performance, they rarely disclosed how they analyzed such individual performance. Where companies omitted performance target amounts, the Staff sought more specific disclosure of the difficulty of meeting targets and/or that the company demonstrate why disclosure of specific targets would cause competitive harm. Where a company presented a non-GAAP financial figure as a performance target, the Staff required that the company disclose how such figure is calculated.


As to benchmarks, companies were asked to provide a more detailed explanation of how they used comparative compensation information and how that comparison affected compensation decisions. If a company can use its discretion to benchmark to different ranges or for that matter not to benchmark at all, the nature and extent of that discretion and how it is exercised must be disclosed.

Change-in Control-and Termination Arrangements

The Staff required more detailed analysis of disclosure of change-in-control and termination arrangements, including a discussion of why companies structured the material terms and payment provisions in their change-in-control and termination arrangements as they did.