September 13, 2022

SEC Adopts Final Pay Versus Performance Rules

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On August 25, 2022, the US Securities and Exchange Commission (SEC) adopted final rules to implement the pay versus performance disclosure requirement mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). The Dodd-Frank Act added Section 14(i) to the Securities Exchange Act of 1934, which directs the SEC to adopt rules that require registrants to clearly disclose the relationship between executive compensation actually paid and the registrant's financial performance. More than 12 years after US Congress passed the Dodd-Frank Act, the SEC has adopted Item 402(v) of Regulation S-K to put these disclosure requirements into effect in time for the 2023 proxy season.



The new pay versus performance rules apply to all reporting companies, excluding emerging growth companies, foreign private issuers and registered investment companies. Smaller reporting companies (SRCs) will have reduced reporting requirements. Item 402(v)'s pay versus performance disclosure will be required in any proxy statement or information statement for which Item 402's executive compensation disclosure is required for fiscal years ending on or after December 16, 2022. Registrants with calendar year-ends will therefore need to address Item 402(v) in their 2023 proxy statements.


Item 402(v) will require registrants to disclose, in tabular format, specified executive compensation and financial performance measures for the registrant's five most recently completed fiscal years. The pay versus performance table must include:

  • A Summary Compensation Table measure of total compensation for the registrant's principal executive officer (PEO) and, as an average, for the registrant's other named executive officers (NEOs).
  • The executive compensation actually paid to the registrant's PEO and, as an average, to the registrant's other NEOs, calculated as prescribed by the rule.
  • The following specified financial performance measures:
    • Total shareholder return for the registrant
    • Total shareholder return for the registrant's peer group
    • The registrant's net income
    • A "Company-Selected Measure" chosen by and specific to the registrant that, in the registrant's view, represents the most important financial performance measure they use to connect the compensation actually paid to their NEOs to company performance for the most recently completed fiscal year.

A registrant will also be required to provide a clear description of the relationships between the executive compensation actually paid to its PEO and, as an average, its other NEOs and the registrant's cumulative total shareholder return, net income and the company-selected measure over the registrant's five most recently completed fiscal years. Registrants will also be required to include descriptions of the relationships between their total shareholder return and their peer group's total shareholder return. Registrants will have discretion in formatting these descriptions, which may be in narrative or graphical form or a combination of the two.

Additionally, a registrant will be required to list three to seven financial performance measures that they conclude are their most important measures. Registrants may, but will not be required to, include non-financial measures in this list if they determine that such measures are among their three to seven most important measures.

The rules do not require the new pay versus performance disclosures to be in any particular section of a registrant's proxy or information statement but Inline XBRL tagging will be required.


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