Article

SEC issues new pay versus performance disclosure requirement

Aug. 31, 2022

On Aug. 25, 2022, the Securities and Exchange Commission (SEC) adopted Release No. 34-95607 (Final Rule), amending Item 402 of Regulation S-K to include a pay versus performance disclosure requirement. The amendment was initially proposed in 2015 following a mandate in the Dodd-Frank Act requiring registrants to disclose information on the relationship between their financial performance and amount of executive compensation paid.  

Who is affected? 

The Final Rule will apply to all reporting companies, except foreign private issuers, registered investment companies, and emerging growth companies. Smaller reporting companies (SRCs) will be permitted to provide scaled disclosures. 

When does the rule become effective? 

Registrants must begin to comply with these disclosure requirements in any proxy and information statements that are required to include Item 402 executive compensation disclosure for fiscal years ending on or after Dec. 16, 2022. Registrants, other than SRCs, will be required to provide the information for three years in the first proxy or information statement in which they provide the disclosure, adding another year of disclosure in each of the two subsequent annual proxy filings that require this disclosure. SRCs will initially be required to provide the information for two years, adding an additional year of disclosure in the subsequent annual proxy or information statement that requires this disclosure. 

What are the disclosure requirements? 

For each of the five most recently completed fiscal years or, for SRCs, the three most recently completed fiscal years, covered reporting companies must disclose the following. Note: SRCs are subject to abridged reporting requirements under the new rule, and as such, are not required to provide some of the disclosures listed below. Disclosures not required of SRCs are denoted below with an asterisk.  

Executive compensation data 

• Total compensation of the registrant’s Principal Executive Officer (PEO), as reported in the Summary Compensation Table (SCT) 
• Compensation “actually paid [1]” to its PEO 
• The average of the total compensation, as reported in the SCT, for all named executive officers (NEOs) other than the PEO