SEC adopts final pay versus performance disclosure rules

In brief

On August 25, 2022, the Securities and Exchange Commission (“SEC”) adopted rules requiring registrants to disclose the relationship between executive compensation actually paid compared to the financial performance of the company. The new rules require additional disclosures in annual proxy statements consisting of a table that provides specified executive compensation and financial performance measures for the five most recent fiscal years (three years for smaller reporting companies) as well as detail intended to illustrate a clear relationship between executive compensation and performance.

The new disclosures are for proxy and information statements that are required to include executive compensation disclosures pursuant to Item 402 of Regulation S-K for fiscal years ending on or after December 16, 2022. Only three years of information needs to be provided in the initial year of adoption, with an additional year added in each of the two subsequent proxy filings. Smaller reporting companies may provide two years in the initial year, with a third year added in the subsequent year.

The rules will apply to all reporting companies, except foreign private issuers, registered investment companies, and emerging growth companies.