It’s been almost 12 years since Dodd-Frank mandated, in Section 953(a), so-called pay-versus-performance disclosure, but amazingly, no rules have yet been adopted to implement that mandate. Even more amazing, the SEC is still working on it. As expected, on Thursday last week, the SEC announced that it had reopened the comment period on rules, originally proposed in 2015, that would require disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance. The reopening of the proposal is due in part “to certain developments since 2015 when the proposing release was issued,” particularly, “developments in executive compensation practices.” Here is the SEC’s original proposing release, fact sheet and the proposal reopening the comment period. According to SEC Chair Gary Gensler in his statement on the reopening of the proposal, “this proposed rule would strengthen the transparency and quality of executive compensation disclosure….The Commission has long recognized the value of information on executive compensation to investors.” The questions posed by the SEC in the notice (discussed below) give us some insight into where the SEC may be headed with the proposal. In particular, as noted by Gensler, the 2015 proposal “relied upon total shareholder return as the sole measure of financial performance. Some commenters expressed concerns that total shareholder return would provide an incomplete picture of performance. In this reopening release, we are considering whether additional performance metrics would better reflect Congress’s intention in the Dodd-Frank Act and would provide shareholders with information they need to evaluate a company’s executive compensation policies.” The public comment period will be open for 30 days following publication of the release in the Federal Register.
Comp Committees appear to have gotten the message when it comes to executive pay for performance. As discussed in this article in the WSJ, executive compensation “is increasingly linked to performance,” but investors are now asking whether the bar for performance targets is set too low to be effective. Are companies just paying lip service to the concept?
by Cydney Posner As discussed in a PubCo post last week, a theory that is currently gaining purchase is that, whether as a result of say on pay or otherwise, the increased influence of proxy advisory firms has led to a kind of homogenization of executive pay packages based on […]
by Cydney Posner This post from the Columbia Law School CLS Blue Sky blog, “Should Say-on-Pay Votes Be Binding?,” by two executives from the Institute for Governance of Private and Public Organizations in Canada, in exploring the issue raised in the post’s title, looks at the question of the effectiveness and […]
by Cydney Posner How to structure executive pay to drive performance over the long term—while avoiding pay levels that would be considered excessive—is a conundrum for compensation committees, consultants, proxy advisory firms and others involved in setting or analyzing executive compensation. And the analysis has only become more complex since […]
by Cydney Posner While TSR (total shareholder return) is increasingly used a performance metric for executive compensation, a study by Cornell University and Pearl Meyer, an executive compensation consultant, showed no real correlation to improvements in company performance, reports the WSJ. In the study, over 48% of S&P 500 companies […]
by Cydney Posner This morning, by a three to two margin, the SEC voted to propose rules requiring companies to disclose executive pay for performance. The proposal comes five years after passage of Dodd-Frank, which imposed the obligation on the SEC. Currently, many companies voluntarily provide information that could fit […]
by Cydney Posner As discussed in this article in Compliance Week, this report, “The Alignment Gap Between Creating Value, Performance Measurement, and Long-Term Incentive Design,” by Organizational Capital Partners and the Investor Responsibility Research Center Institute, contends that most companies are using the wrong metrics to align executive pay with performance. Rather […]