SEC finalises top exec pay disclosure rules

September 2, 2022

Companies required to disclose compensation relative to financial performance.

US-listed companies will soon have to disclose how the pay of their top executives compares against the firm’s performance after new rules were finalised by the Securities and Exchange Commission (SEC).

Finalised on August 25, these rules have been designed to supplement – not supplant – the disclosure of performance as measured by total shareholder return.

The rules require companies to disclose how compensation paid related to company financial performance over a five-year period, with smaller companies subject to a three-year reporting period.

This must be presented as a table in companies’ proxy statements.

The table must also include the company’s total shareholder return, the return of companies in its peer group, its net income, and a financial performance measure chosen to represent the added value of top-paid executives.

Using this information, companies will be required to describe the relationship between top executive remuneration and the financial performance of the company.

Non-financial measures can be included if a company considers them to be “most important”.

These new rules were originally tabled under the 2010 Dodd-Frank Act but took shape under a 2015 proposed amendment by the regulator.

Read Minerva's previous coverage of SEC rule changes:

https://www.old.manifest.co.uk/sec-proposes-new-rules-against-greenwashing-in-esg-funds/

They were covered in a consultation period, beginning in January 2022.

“[These new rules] make it easier for shareholders to assess a public company’s decision-making with respect to its executive compensation policies,” said SEC chair Gary Gensler.

“I am pleased that the final rule provides for new, more flexible disclosures that allow companies to describe the performance measures it deems most important when determining what it pays executives. I think that this rule will help investors receive the consistent, comparable, and decision-useful information they need to evaluate executive compensation policies.”

The rules come into effect 30 days after their inclusion in the Federal Register.

Companies will be required to begin disclosure for fiscal years ending on, or after, December 16, 2022.