by Cydney Posner
A poll conducted by compensation consultant Towers Watson in the course of its webcast on the SEC’s proposed pay-versus-performance disclosure rules revealed that, if the rules are adopted, more than half of the respondents expect to disclose “more than the minimum” required under the SEC proposal and one in three “expect to significantly change their approach to disclosing information on how they reward their executives,” according to the press release. As discussed in this Cooley Alert, “SEC Proposes New Rules on Pay Versus Performance: When “Compensation Actually Paid” is Not Compensation Actually Paid and “Company Financial Performance” May be Unrelated to Company Financial Performance,” in April of this year, the SEC voted to propose rules requiring public companies to disclose the relationship between compensation actually paid and company financial performance. The proposed new rules would require tabular disclosure of “total compensation” as shown in the company’s Summary Compensation Table, as well as a new measure of “compensation actually paid,” for a phased-in five-year period. The company would also be required to disclose in the table the company’s cumulative total shareholder return (TSR) and the cumulative TSR for a selected peer group.
Towers Watson polled 453 corporate executives and compensation professionals during its webcast on the proposed rules. Of those responding to the poll, 33% said they expect the pay-versus-performance rules, if adopted, “will fundamentally change their approach to executive pay disclosure. More than half of the respondents (55%) expect to do more than the minimum that would be required under the SEC proposal: 37% plan to disclose additional information and analyses to help tell their pay-for-performance story, while 18% will perform and may disclose additional pay-for-performance analyses.” According to a TW representative, the use of TSR as the metric to measure financial performance will likely lead to even greater focus by shareholders on this measure, but TSR may not present the entire picture: “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.” The Cooley Alert and this post both noted that the use of TSR as a measure of financial performance was questioned by two of the SEC’s five Commissioners in voting on the proposal, and has otherwise been viewed by a number of critics as problematic in other contexts.
In addition, 46% of poll respondents indicated that they have been “waiting for the rules to be issued” and expect to make some changes to CD&A, while 10% view the proposed rules as “an opportunity to revamp their CD&A significantly. Additionally, roughly half of respondents (51%) anticipate using the same peer group for their pay-versus-performance disclosure that they use for benchmarking their total compensation.”