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SEC Reopens Comment Period for Paid Proxies Disclosure | Seyfarth Shaw LLP

Seyfarth Synopsis: In 2015, the United States Securities and Exchange Commission (“SEC”) issued proposed rules on performance-based compensation disclosure required under the Dodd-Frank Wall Street Reform Act and Consumer Protection 2010 (“Dodd-Frank”). ). Although this proposal attracted much comment at the time, the rules were never finalized. Seemingly to freshen up the debate and get things moving, the SEC recently reopened the 30-day comment period for these proposed rules in 2015.

Dodd-Frank was enacted to provide financial stability after the 2008 financial crisis by requiring accountability and transparency from SEC registrants.¹ Some Dodd-Frank provisions required rulemaking by the SEC to be implemented. In particular, Dodd-Frank Section 953(a) (which added Section 14(i) to the Securities Exchange Act of 1934) requires the SEC to adopt rules requiring registrant proxy statements to describe the relationship between executive compensation actually paid and the company’s financial performance.

Proposal 2015

The reopened comment period relates specifically to the part of the 2015 proposal related to the new disclosure rule, Section 402(v) of Regulation SK. This “2015 Proposal” would require a registrant to describe how the executive compensation actually paid by the registrant relates to the registrant’s financial performance. The 2015 proposal would require a proxy chart providing:

  • the “Total Compensation” actually paid to the Principal Corporate Officer (“PEO”) and, on average, to the Other Named Corporate Officers (“NEO”) of the Company, as set out in the Summary Compensation Table;
  • the “compensation actually paid” to the PEO and other NEOs, which is based on the amounts reported as “total compensation”, adjusted to (i) exclude changes in the actuarial present value of pension benefits and ( (ii) consider the fair value of equity awards at vesting, rather than their fair value at the grant date;
  • the company’s total shareholder return (“TSR”) over the last three completed financial years as a measure of its financial performance; and
  • the TSR of the company’s peer group over the last three financial years.

Small reporting companies are required to disclose the relationship between executive compensation actually paid and the TSR over the filer’s last three fiscal years, but are not required to disclose the peer group’s TSR.

2022 release

The SEC’s stated purpose in reopening the comment period on the 2015 proposal is to determine whether disclosing additional performance measures would provide investors with useful information to assess the relationship between executive compensation and financial performance. a company while preserving comparability. The press release accompanying the Reopening of comment period for pay-for-performance (the “2022 Release”) includes a statement from SEC Chairman Gensler that “commentators have expressed concerns that total shareholder return would provide an incomplete picture of performance.” Accordingly, the SEC is also considering requiring registrants to disclose the following performance measures to clarify for investors the relationship between executive compensation and financial performance:

  • Disclosures in tabular form of the registrant’s pre-tax net income, net income, and a measure chosen by the business to measure its financial performance;
  • In a format of the declarant’s choice (for example., a graph or narrative text), a clear description of the relationship between the measurements provided in tabular form (for example., the three proposed new measures); and or
  • A list of the five most important reporter metrics used to link compensation actually paid in the year to business performance, in order of importance.

As part of the reopened comment period, SEC commissioners said “financial incentives are a key motivator to drive executive performance in their role as corporate fiduciaries and shareholders” and “understand what these incentives are and whether they work and how they relate to company performance is important for investors in evaluating company compensation practices. In addition, one commissioner specifically noted that companies are increasingly linking executive compensation to environmental, social and governance (“ESG”) measures to advance their ESG objectives and improve their performance, including through ESG-related performance measures. (See Seyfarth’s thought piece on this topic here.) More broadly, citing the growing gap between executive compensation and that of ordinary workers, one commissioner pointed out that “investors need to know whether the growth in executive compensation has also translated into the creation of value”. The commissioners asked commentators for comment on how the rule’s flexibility could provide companies and investors with better information to evaluate these types of incentive compensation arrangements tailored to company performance.

While the 2022 version would add content requirements to the disclosures offered that some commentators have already described as onerous, it would also provide companies with a greater ability to document how value is created for its shareholders through incentive policies. efficient. Specifically, the 2022 release would allow companies to use a custom alternative performance metric to demonstrate how their uniquely designed incentive programs contribute to company financial performance. Custom performance metrics could be designed taking into account industry-specific variations, including taking into account sustainability or other ESG characteristics. For example, progress towards certain industry-specific ESG standards (for example, as identified by the Sustainable Accounting Standards Board) could be incorporated into a company’s performance measurement.

Finally, note that the SEC does not appear to be unified in its quest to issue a final rule under Dodd-Frank Section 953(a). An SEC commissioner has said he disagrees with the need for additional disclosure requirements, saying such disclosure would be burdensome for public companies, questioning its usefulness for investors and suggesting the 2022 version is beyond the statutory mandate of Section 953(a).

The new 30-day comment period ended on March 4, 2022. We hope this means that a final rule will be released sometime in 2022.


  1. Generally, an “SEC registrant” includes, but is not limited to, an “issuer” of a security required to file under the Securities Act of 1933, the Securities Exchange Act of 1934, and a registrant who files periodic reports under the Securities Exchange Act of 1934 or Investment Company Act of 1940. This includes companies that trade on a US stock exchange.