The Securities and Exchange Commission wants companies to show executive compensation in relation to the financial performance of a company and its peers–in a format that is tabular, tagged and interactive.
The rules, implementing a requirement of the Dodd-Frank Act, would provide greater transparency and allow shareholders to be better informed when they vote to elect directors and in connection with advisory votes on executive compensation, the SEC said in a statement.
These rules “would better inform shareholders and give them a new metric for assessing a company’s executive compensation relative to its financial performance,” said SEC Chair Mary Jo White. “The proposal would require enhanced disclosure that can be compared across companies.”
Companies would have to disclose the executive compensation actually paid for the principal executive officer, using the amount already disclosed in the summary compensation table required in the proxy statement and 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.
As the measure of performance, a company would also be required to report its total shareholder return and the TSR of companies in a peer group.
The executive pay and performance information for the company and its peers would have to be displayed in a table and tagged in an interactive data format.
Using the information presented in the table, companies would also be required to describe the relationship between the executive compensation actually paid and the company’s TSR, and the relationship between the company’s TSR and the TSR of its selected peer group.
“This disclosure could be described as a narrative, graphically, or a combination of the two,” the SEC said.
Disclosure would be required for the last five fiscal years, except that smaller reporting companies would only be required to provide disclosure for the last three fiscal years. Smaller reporting companies would not be required to present a peer group TSR because they are not required to disclose an Item 201(e) performance graph or a compensation discussion and analysis.
The comment period for the proposed rules will be 60 days after publication in the Federal Register.
