Pay-versus-performance disclosure
First year learnings
Companies took a “less is more” approach for the first year of disclosure under the new SEC pay-versus-performance (PvP) rule. To describe the company’s pay-versus-performance relationship and the relationship between company and peer group performance, most opted for graphs and cross-references to the Compensation Discussion & Analysis (CD&A), rather than lengthy narratives. Compliance with the new rule was extremely labor intensive — particularly the calculation of “compensation actually paid” (CAP) — and required a team of HR, legal, compensation consulting, accounting, and actuarial professionals.
There are several open questions on how to interpret the rule and not all companies used the same methodology to calculate certain aspects of CAP. However, the SEC staff said they won’t play “gotcha” this first year and will give companies the benefit of the doubt if they made a good faith effort to comply. Proxy advisory firms are monitoring the disclosures, but not yet incorporating them into their pay-for-performance analyses, and the media’s response has been muted so far.
This article summarizes the rule’s requirements, reports results from a Mercer analysis of S&P 500 and Russell 3000 early proxy disclosures, and highlights some of the outstanding disclosure issues the staff is likely to address before next year.
is a Senior Legal Consultant in Mercer's Law & Regulatory Group (L&R) based in Washington DC. She provides expert analyses on a variety of US and Canadian compliance and policy matters, and advises clients on securities and corporate governance issues affecting executive pay in North America.
is a Partner and Senior Legal Consultant in Mercer's Law & Regulatory Group (L&R) based in New York. She specializes in technical legal and regulatory issues affecting executive compensation and corporate governance. She focuses on SEC disclosure, tax, employment and change in control agreements, equity programs, and employee benefit issues that arise in the context of corporate transactions and initial public offerings.