Final Rule: Pay vs. Performance

Final Rule: Pay vs. Performance

On August 25, 2022, the Securities and Exchange Commission (SEC) adopted a rule to increase transparency on the relationship between executive compensation and financial performance. The rule was originally proposed in 2015, but then reopened for comment in January of 2022.

Under this new rule, all reporting companies except foreign private issuers, registered investment companies, and emerging growth companies will be required to disclose in their proxy statements several pay vs. performance measures. These disclosures have four important requirements:

  1. Compensation for the principal executive officer and other named executive officers for the last 5 years;
  2. Financial performance measures including total shareholder return for the registrant and their peer group, registrant net income, and a company-selected measure;
  3. A clear description of the relationship between the performance measures and executive compensation paid; and,
  4. A list of three to seven performance measures that the registrant determines as the most important measures.

For the first reporting year, registrants will only be required to report this data for the previous three fiscal years, adding a year of data in each of the subsequent two years. The values within the disclosure table, relationship disclosures, and footnote data will be required to be tagged using Inline XBRL (iXBRL). Companies will need to begin disclosing and tagging their pay vs. performance disclosures for any fiscal year report ending on or after December 16, 2022.

The rule also includes an exception for Smaller Reporting Companies (SRC). SRC’s will still be required to report the same information, but will only have to report the past three fiscal years’ data, with the initial filing only requiring the past two fiscal years’ data. They will also be given a grace period on the iXBRL requirement until their third filing.

Do you need help understanding this new rule? Or a software provider to tag your pay vs. performance disclosure? CompSci’s team of experts are here to help. Contact us today.