SEC Staff Interpretive Guidance for Executive Compensation Disclosures
SEC Staff Interpretive Guidance for Executive Compensation Disclosures
Summary
New Compliance and Disclosure Interpretations (C&DIs) offer guidance for SEC registrants on:
- The computation of compensation actually paid (“the computation”) in pay versus performance disclosures
- Non-GAAP financial information presented in Compensation Discussion and Analysis (CD&A)
Pay versus Performance Disclosure Interpretations
The disclosure of executive compensation "actually paid" during a year, as required under Item 402(v) of Regulation S K, is adjusted for certain amounts related to equity-based compensation and defined benefit and actuarial pension plans. Determining the equity-based compensation adjustments can be challenging because registrants must determine the fair value of equity-based awards at the end of each fiscal year and at the date vested, which may not otherwise be required under U.S. GAAP.
The following table summarizes the SEC staff’s guidance on the computation and disclosure of equity-based compensation adjustments used in the computation.
Summary of the Pay versus Performance C&DIs Item 402(v) of Regulation S-K | |
Awards granted prior to an equity restructuring or Initial Public Offering (IPO) (Questions 128D.14 and 128D.15) |
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Market or performance-based conditions (Questions 128D.16, 128D.17, and 128D.19) |
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Accelerated vesting upon retirement (Question 12D.18) |
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Computation of fair value and related disclosure (Questions 128D.20, 128D.21, and 128D.22) |
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Executive Compensation Disclosure Interpretations
A registrant may disclose non-GAAP financial information in CD&A to describe levels of compensation or the relationship between pay and performance. The SEC staff’s guidance, summarized in the following table, clarifies the scope of non-GAAP financial information that must comply with Regulation G and Item 10(e) of Regulation S-K and the method in which a registrant may satisfy the requirements.3
Summary of the Executive Compensation C&DIs Item 402(b) of Regulation S-K | |
Non-GAAP financial information included in CD&A (Question 118.08) |
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For additional guidance on pay versus performance disclosures, see BDO’s Pay versus Performance Disclosures: A Snapshot.
1The SEC staff’s view on using the “simplified” method for “plain vanilla” options is in Staff Accounting Bulletin 14.D.2.
2See Instruction 4 to Item 402(b) of Regulation S-K.
3Non-GAAP financial information has consistently been one of the SEC staff’s most frequent comment letter topics. Previously released SEC staff guidance on the presentation of non-GAAP financial information is summarized in our BDO Bulletin: SEC Updates Compliance and Disclosure Interpretations on Non-GAAP Financial Measures.
4Except for disclosure made pursuant to Item 402(v)(2)(vi) of Regulation S-K, such as the Company-Selected Measure, or other financial performance disclosures.
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