Long awaited pay-for-performance disclosures required in 2023 proxies 

Twelve years after the Dodd-Frank Act became law and seven years after the SEC initially proposed a rule to implement the mandated pay-versus-performance disclosure, the SEC has approved a final rule. The rule requires companies to (i) disclose the relationship between executive pay and company performance using total shareholder return (TSR), net income and company-selected performance measures, and (ii) compare company and peer group TSR performance, each over a phased in five-year period. Disclosure must be included in proxy and information statements for fiscal years ending on or after December 16, 2022. Complying will require new equity award and pension calculations and analyses. To prepare for the 2023 proxy season disclosure, companies should create a pro forma table and consider what conclusions investors or the media might draw and whether supplemental disclosures would be helpful to demonstrate the company’s pay-for-performance link.


The final rule (new Item 402(v) of Regulation S-K) expands executive pay disclosures by adding a nine column “pay-versus-performance” table and descriptions of the relationships between a company’s actual executive pay and performance, and between TSR performance of the company and its peer group companies. The disclosure must be in proxy and information statements in which executive compensation disclosure is required.

New table and narratives. Proxies and information statements must include:

  • A table showing for each of the five most recently completed fiscal years (subject to a phase-in period):
    • Total CEO compensation, as reported in the Summary Compensation Table (SCT), and the “compensation actually paid” (i.e., SCT pay with adjustments to equity and pension values) to the CEO
    • Average total SCT pay and compensation actually paid to other named executive officers (NEOs)
    • Company’s cumulative TSR
    • Cumulative TSR of a company-selected peer group or index
    • Company’s net income
    • Company-selected financial performance measure
  • Descriptions (using graphs or narrative, or both) of:
    • Compensation actually paid to the CEO and other NEOs compared with the company’s cumulative TSR
    • Company’s cumulative TSR compared with peer group cumulative TSR
    • Relationship between compensation actually paid and each performance measure
  • Three to seven performance measures most important for linking compensation actually paid to performance 
    • Compensation actually paid is total SCT compensation with adjustments for equity and pension values

Scope of the rule

  • Covered companies.

    The rule covers public companies subject to US executive pay disclosure rules but exempts: 

    • Emerging growth companies, which provide simplified SCT disclosure and are specifically exempt from the pay-for-performance requirement by the JOBS Act
    • Foreign private issuers, which are not subject to US proxy rules
    • Registered investment companies, which are typically externally managed and don’t have NEO
  • Covered executives.
    Pay for the CEO (referred to as the principal executive officer, or PEO) is disclosed individually. If a company had more than one CEO during a year, the total amount paid to each CEO would be reported separately in additional columns. But because the identity and number of NEOs varies from year to year, average pay is shown for the remaining NEOs.
  • Covered years and phase-in period; newly public companies.
    Companies, other than SRCs, disclose information from the five most recently completed fiscal years. But the requirement to show five years of data is phased in: For the first filing that includes the disclosures, only the most recent three years of information is required. Another year is added in each of the next two filings. For newly public companies, disclosure is required only for the most recently completed fiscal year.
  • Smaller reporting companies. 
    The disclosures are scaled down for smaller reporting companies (SRCs). SRCs have to provide information for only three years, and don’t have to include peer company TSR. As is the case for all SRC filings, covered executives include the CEO and two other NEOs, and pension amounts are excluded. XBRL tagging (discussed below) isn’t required until the third year of compliance. For the first filing where compliance is required, information for only two years must be provided; another year will be added in the next proxy filing.
  • Disclosure status.
    The disclosures are subject to the say-on-pay vote and are considered “filed” for purposes of securities laws. However, the disclosures aren’t incorporated by reference in Form 10-K or Securities Act registration statements, so the liability for securities law violations that attaches to “filed” information is limited to proxy statement violations (unlike most other executive pay disclosures).
Carol Silverman
Amy Knieriem
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