Practical Considerations For New Pay vs. Performance Disclosure Requirement

The SEC's final rule on Pay Versus Performance becomes effective on October 8, 2022, and will require new executive compensation disclosures for the upcoming proxy season (for annual proxy statements that include executive compensation disclosure for fiscal years ending on or after December 16, 2022). The new rule implements a requirement of the 2010 Dodd-Frank Act that public companies disclose "a clear description" of compensation paid to their top executives, including information "showing the relationship between executive compensation actually paid and the financial performance of the issuer."

Complying with the new rule will require significant effort, but the underlying substance is not entirely new. Most of the information is already provided in the proxy statement and financial reports; and during the twelve years since Dodd-Frank became law, shareholder advisory services (such as ISS and Glass-Lewis) have refined extensive quantitative and