SEC Adopts Final Pay Versus Performance Disclosure Rules

In case you didn’t hear, back on August 25th, the SEC adopted final pay versus performance disclosure rules.

The breadth and complexity of the new rules require that companies begin to prepare the new disclosures to provide enough time for data collection, calculations, drafting, review, internal approvals, and appropriate coordination with the compensation committee ahead of the 2023 proxy season.

The new rules will require the following three new disclosures in any proxy or information statements that must include executive compensation disclosure:

☑️A table disclosing the CEO’s compensation, the average compensation of the other NEOs, and three performance measures for each year over the preceding five years.

☑️A description of the relationship between the amounts “actually paid” to the company’s NEOs, and the three performance measures for each year over the last five years.

☑️A tabular list of three to seven financial performance measures that, in the company’s assessment, represent the most important financial performance measures used to link compensation “actually paid” to the NEOs for the most recent year to the company’s performance.

Emerging growth companies, registered investment companies, and foreign private issuers are exempt from the new requirements. Smaller reporting companies are subject to scaled disclosure, as described below.

Companies must consider involving their compensation committees in responding to the new disclosure requirements. The disclosures may not align precisely with CD&A disclosures or how the committee has approached compensation decisions.

Read more by Foley’s Joshua Agen, Patrick Quick, and Jessica Lochmann here.

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Louis Lehot

Louis Lehot is a partner and business lawyer with Foley & Lardner LLP, based in the firm’s Silicon Valley office. Follow on Twitter @lehotlouis