SEC Flash Report - June 2015

June 2015

SEC Proposes Pay Vs. Performance Disclosures

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On April 29, 2015, the Securities and Exchange Commission proposed rules which would implement requirements mandated by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The proposed rules would require registrants to disclose in a clear manner the relationship between executive compensation actually paid and the financial performance of the registrant. The proposed rules are intended to help shareholders to be better informed when they vote to elect directors and in connection with advisory votes on executive compensation.
Proposed Item 402(v) of Regulation S-K would require registrants to provide a table comparing the (i) executive compensation actually paid to the named executive officers for whom disclosure is currently required in the Summary Compensation Table (SCT); (ii) Total Shareholder Return (TSR) for the registrant and; (iii) TSR for the selected peer group.

Pay Versus Performance



SCT Total for Principal Executive Officer
Compensation Actually Paid to PEO
Average SCT Total for non-PEO Named Executive Officers
Average Compensation Actually Paid to non-PEO Named Executive Officers
Total TSR
Peer Group TSR

Executive compensation actually paid is to be different than the total compensation reported in the SCT. Executive compensation actually paid is total compensation as reported in the SCT for the year (i) less the change in the actuarial present value of pension benefits, (ii) less the grant-date value of any stock and option awards granted during the year that are subject to vesting, (iii) plus the actuarially determined service cost for services rendered during the applicable year, and (iv) plus the value at the vesting date of stock and option awards that vested during that year. The executive compensation would be presented separately for the PEO and as an average for the remaining named executive officers identified in the table.
TSR would use the definition included in Item 201(e) of Regulation S-K (i.e., dividends plus or minus change in share price) and TSR for the selected peer group would use the peer group identified by the company in its stock performance graph or in its CD&A.
Using the values presented in the table, proposed Item 402(v) would require the registrant to describe (1) the relationship between the executive compensation actually paid and registrant TSR, and (2) the relationship between registrant TSR and peer group TSR. Such disclosures would follow the table and could be presented as a narrative, graphically, or a combination of the two.

Other Highlights of the Proposed Rules

  • The proposed disclosure would be required in proxy or information statements in which executive compensation disclosure is required.
  • The proposed rules would apply to all reporting companies except for foreign private issuers, registered investment companies and emerging growth companies.
  • The disclosure would be required for the last three fiscal years for smaller reporting companies and last five fiscal years for any other registrants.  Smaller reporting companies would not be required to present a peer group TSR.
  • The disclosure will be tagged in an interactive data format using eXtensible Business Reporting Language, or XBRL. Tagging would be phased in for smaller reporting companies, so that they would not be required to comply with the tagging requirement until the third annual filing in which the pay-versus-performance disclosure is provided.
  • The phase-in period is as follows:  Smaller reporting companies would initially provide the information for two years, adding an additional year in their subsequent annual proxy or information statement that requires this disclosure. Other registrants would be required to provide the information for three years in the first proxy or information statement in which they provide the disclosure, adding another year of disclosure in each of the two subsequent annual proxy statements that require this disclosure.
The proposing release is available. Comments on the proposed rules should be provided by July 6, 2015.

 For questions related to matters discussed above, please contact Jeffrey Lenz or Roscelle Gonzales.