Pay-Versus-Performance Table in U.S. Proxy Circulars: New Rule Proposed by SEC

A new rule proposed by the SEC would require U.S. companies to include a table in their annual meeting circulars comparing executive pay to shareholder return.

What You Need To Know

• The rule was mandated by the Dodd-Frank Act and is meant to increase transparency for shareholders in casting their say-on-pay votes.
• Five years of data would be required in tabular format, showing compensation paid to the CEO, the average compensation paid to the other four named executive officers (NEOs), the company’s total shareholder return (TSR), and the TSR of the company’s peer group (either the index group from the performance graph or another clearly identified peer group).
• Most cross-listed Canadian companies will be exempt from the SEC rule as “foreign private issuers.” Emerging Growth Companies are also exempt.
• To facilitate comparisons across companies, the data in the table would have to be tagged in interactive data format (XBRL), as is already required for U.S. companies’ financial information.
• There is no equivalent Canadian rule requiring a pay-versus-performance table, but comparable raw data is available in Canadian proxy circulars.
• Since the SEC mandated say-on-pay several years ago, a large majority of U.S. companies have received very strong support for their executive compensation programs. We believe that the proposed pay-versus-performance disclosure is unlikely to affect that overall trend, but if a company were to do a poor job of explaining a significant discrepancy shown in its table between pay and stock performance, its say-on-pay results could suffer.