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SEC Proposes Pay For Performance Rule
April 29, 2015
On April 29, 2015, the SEC released a proposal to enact Section 953 of the Dodd-Frank Act. Section 953 deals with the
relationship between compensation and company performance. This is the second executive compensation rule proposed
this year by the SEC, following the hedging rule proposed in February.
Proposed SEC Rule
Section 953 requires issuers to include information that shows the relationship between executive compensation actually
paid and company financial performance. The comparison must be included in all proxies and consent solicitations, and may
be represented graphically.
The proposed rule outlines several key areas:
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Pay Definition: Total compensation actually paid is defined as total compensation as disclosed
in the Summary Compensation Table, excluding changes in actuarial present value of benefits and the value of equity
awards at vesting rather than the value when granted.
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Performance Definition: Performance is defined as cumulative total shareholder return (TSR) over
the five most recently completed fiscal years. Registrant must disclose its TSR as well as a peer group TSR.
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Disclosure Details
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Executive compensation disclosure for the CEO and an average of the other Named Executive Officers
(NEOs) is required to be presented.
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The disclosure must be provided in an interactive data format, requiring issuers to tag each value
of executive compensation and TSR.
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Issuers are also required to describe the relationship between compensation and TSR and the relationship
between the issuer TSR and peer group TSR as a narrative, a graphic, or a combination of the two.
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Small Company Exception: Smaller companies are required to disclose only three years of information,
and they are not required to disclose a peer group TSR.
This is the third proposed rule currently awaiting finalization by the SEC. The only remaining rule related to executive
compensation that has yet to be proposed is Section 954, which mandates the disclosure of a company’s clawback policy.
The pay versus performance proposed rule is open for comment for 60 days. Read the full text of the rules
here. Visit the
Equilar Dodd Frank Resource Center for the latest updates.