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SEC Issues Final Pay for Performance Rules

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On August 25, 2022, the SEC issued its final pay-for-performance rules under Section 953(a) of the Dodd-Frank Act. The SEC posted a press release (SEC.gov | SEC Adopts Pay Versus Performance Disclosure Rules) summarizing the key details of the final rules, and posted the final rules here: Final rule: Pay Versus Performance (sec.gov).

The SEC has also published a fact sheet on pay versus performance: 34-95607-fact-sheet.pdf (sec.gov)

The final rules will require companies to provide tabular disclosure that details the following metrics for a five-year period:

  • Total shareholder return (TSR) of the company
  • TSR of the company’s peer group
  • net income of the company, and
  • a company-chosen financial performance measure

Companies will then need to reference the data disclosed in the table and explain the relationship between each metric and the executive compensation actually paid. Finally, companies will need to provide a list of three to seven financial performance measures that they determine are their most important performance measures for linking executive compensation actually paid to performance.

The SEC indicated it would scale these disclosures for smaller public companies.

Timing—The Press Release shows that the final rules will become effective 30 days following publication. Companies must comply with these new disclosure requirements in proxy statements and information statements that include Item 402 executive compensation disclosures for fiscal years ending on or after December 16. 2022. Thus, these new, final pay-for-performance rules apply to proxy statements filed in 2023 for calendar year companies.

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