Sec Releases Final Rules Regarding Pay-Versus-Performance (PVP) Disclosures

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What boards need to do now.

The Securities and Exchange Commission (SEC) released its final version of the rules mandated by Dodd-Frank regarding the disclosure of pay versus performance (PVP) on August 25, 2022. Initial rules were proposed in 2015, and follow-up proposals and invitations for comment were extended in late 2021 and early 2022 by the SEC. The SEC PVP disclosure is intended to provide investors with a clear analysis of the alignment of the top executives’ compensation actually paid (CAP) with the company’s financial and stock price performance. This analysis, while complex, may be viewed by investors as a window into the governance and workings of the company’s pay for performance model.

Pay Governance LLC prepared a Viewpoint with the intent of providing our clients and interested parties with a comprehensive yet clear picture of this new SEC disclosure requirement. This summary provides a snapshot of the new rules.

We encourage SEC-filing companies to begin gathering the data and developing the PVP discussion needed to comply with the new disclosure requirements. There is a great deal of disclosure detail that companies can begin to draft immediately. (See box at right for recommended steps companies can take to initiate this process.)

The new rules will become effective for companies with fiscal year disclosures ending on or after December 16, 2022. This means that companies on a calendar year will need to include their PVP disclosures in their 2023 proxies.

Calculating CAP

The disclosure of CAP was mandated by the Dodd- Frank legislation, but Congress left the SEC with significant discretion on how to define it for PVP comparisons. In the box at right, we have summarized the key components of CAP.

Pay Governance’s Recommended Next Steps

In order to get a head start on this extensive new disclosure requirement, companies may wish to consider some of the following activities:

1. Begin compiling the cumulative TSR and CAP data for 2020 and 2021, as these amounts can be calculated now and are not dependent on 2022 year-end stock prices or equity awards granted or vested in 2022;

2. Estimate the 2022 cumulative TSR and CAP data and prepare a pro forma PVP table;

3. Start analyzing the three to seven performance metrics that are driving pay outcomes for 2022 and identify from the list which metric(s); would be appropriate for inclusion as the CSM(s);

4. Determine which peer group to use for TSR comparisons in the PVP table and evaluate the correlation of the company’s TSR with alternative indices/peer groups; and

5. Begin work with the pension actuary regarding the retirement amounts to be included in the PVP table CAP amounts for 2020 and 2021 from both qualified and non-qualified retirement plans.

In preparing initial drafts of the PVP table and the accompanying narrative, it may become clear that the CAP calculations and PVP table do not adequately capture the company’s pay for performance story. In these instances, it may be useful to consider a supplemental discussion to the PVP disclosure that presents an analysis of realizable pay and reporting of three-year and five-year performance and TSR data relative to peers.

Over the course of the next several weeks, Pay Governance will devote more time to studying and analyzing the new SEC disclosure rules. We will provide additional Viewpoints sharing our findings, conclusions and recommendations, which will be available at

General questions about this Viewpoint can be directed to John Ellerman (john.ellerman@, Ira T. Kay (ira.kay@paygovernance. com), or Mike Kesner (mike.kesner@

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