Public companies anticipate making significant changes in the way they report on pay-for-performance elements of executive compensation in the wake of proposed rules the SEC voted to advance in April. The SEC proposal outlines how the Commission will fulfill the requirements of Sec. 953(a) of the 2010 Dodd-Frank Wall Street Reform Act.

In fact, the majority of public employers responding to a poll by Towers Watson reported they will “provide additional information and analysis that go beyond what the proposed rules will require,” according to a summary of the survey issued by the consulting firm.

More disclosure planned

One-third of survey respondents believe the SEC rules “will fundamentally change their approach to executive pay disclosure,” TW found.

“The fact that many companies expect to provide more information than the rules require is encouraging, although for many, the real challenge will be deciding the best way to present this information in their proxies,” says Steve Kline, head of TW’s executive compensation consulting group, in a statement.

Under the proposed rules, according to the SEC, companies would be required to disclose executive compensation “actually paid for its principal executive officer using the amount already disclosed in the summary compensation table required in the proxy statement, making adjustments to the amounts included for pensions and equity awards.”

The amount disclosed for the remaining executive officers would be the average compensation actually paid to those executives. 

Total shareholder return

The rules would also require disclosure of the company’s total shareholder return on an annual basis, as defined by the SEC’s Regulation S-K. To give shareholders context for assessing the executive pay, the proposed rule would also require disclosure of total shareholder return for peer group companies, using the peer group the company has identified in its stock performance graph or in its compensation discussion and analysis.

Equity awards to executives that must be disclosed under the proposed rules “would be considered actually paid on the date of vesting and at fair value on that date, rather than fair value on the grant date as required in the summary compensation table,” according to the SEC.  Both amounts would be disclosed in the new table. 

Also, companies would be required to disclose the vesting date valuation assumptions if they are materially different from those disclosed in their financial statements as of the grant date.

All companies would be required to disclose the information for the last five fiscal years, except for smaller reporting companies, which would only be required to provide disclosure for the last three fiscal years, reports the SEC. The rules would be phased in over a five-year period.

The SEC is accepting comments on the proposed disclosure rules until July 6, but the TW poll suggests companies aren’t anticipating significant changes to the rule.

The proposed rule might make it necessary for companies to consider additional disclosures. Total shareholder return “is only a part of the pay-for-performance story,” TW’s Kline notes. “Companies will want to think carefully about the broader performance picture and how best to help shareholders understand how the pay programs support long-term value creation,” he added.

Richard Stolz is a freelance writer based in Rockville, Maryland.

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