US proposes disclosure of pay versus performance, making use of interactive technology

The US Securities and Exchange Commission (SEC) has proposed a new rule requiring disclosure of the extent to which the pay of top corporate executives is linked to their companies’ financial performance.

The new SEC requirements will force companies to make use of interactive internet technology to enhance understanding and make comparisons easier. The Australian requirement, introduced in 2005, is for directors to discuss the relationship between a company’s pay policy and company performance, and include 5 years of earnings and TSR performance. However, the Australian requirement has no required statutory format, and does not require the application of technology.

The proposed US rule would require a company to disclose executive pay and performance information for itself and companies in a peer group in a table and to tag the information in an interactive data format. A company would be required to disclose executive compensation actually paid for its principal executive officer using the amount already disclosed in the summary compensation table required in the proxy statement, making adjustments to the amounts included for pensions and equity awards. The amount disclosed for the remaining executive officers would be the average compensation actually paid to those executives.

As the measure of performance, a company would be required to report its total shareholder return (TSR) and the TSR of companies in a peer group. In most cases, companies would have to disclose the information for the last five fiscal years; for smaller firms, it’s three fiscal years.

The proposed rule will now be subject to a 60-day comment period. The SEC’s statement can be found HERE.

For those who would like to assess if US proposal for New Item 402(v) of Regulation S-K will be more effective than the 9 lines in the Australian legislation can look at the US detail in the 137 page proposal HERE.

© Guerdon Associates 2024
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