On August 25, 2022, the U.S. Securities and Exchange Commission (“SEC”) adopted final rules implementing the “pay versus performance” provisions of the Dodd-Frank Act. New Item 402(v) requires the disclosure of information that shows the relationship between executive compensation actually paid and the financial performance of the issuer, which includes:
- a new pay-versus-performance table, containing: (1) the summary compensation table total and the total “executive compensation actually paid” for the CEO and for the other named executive officers as an average; (2) total shareholder return (“TSR”) for both the registrant and its peer group; (3) net income; and (4) a “company-selected measure,” reported for up to five years (starting with three years for the first filing). The calculation of “executive compensation actually paid” includes adjustments from the summary compensation table totals for both pension benefits and equity awards;
- accompanying narrative or graphical disclosures, providing a clear description of: (1) the relationships between executive compensation actually paid to the CEO and other named executive officers (on average) and (a) the registrant’s TSR, (b) the registrant’s net income and (c) the company-selected measure, in each case over the period of time included in the pay-versus-performance table; and (2) the relationship between the registrant’s TSR and its peer-group TSR, in each case over the same period of years; and
- a tabular list of the three-to-seven most important performance measures used by the registrant to link executive compensation actually paid to its CEO and named executive officers during the most recently completed fiscal year to company performance.
We have prepared a set of Q&As to assist our public company clients in complying with these new disclosure requirements.