Compliance Date for Final SEC Rule Requiring Companies to Disclose Relationship Between Executive Pay and Financial Performance is 1/1/17

The compliance date for the final SEC rule that requires publicly held companies to report on the relationship between executive pay and company financial performance is January 1, 2017 for companies whose fiscal years begin on January 1.

The new rule implements Section 953(a) of the Dodd-Frank Act to provide greater transparency and better inform shareholders voting on executive compensation.

The “pay vs. performance” rule will be required in the proxy or information statements of publicly held companies wherever the disclosure of executive compensation is mandated. The disclosure must be in the form of a new table covering the last five fiscal years (three years for smaller reporting companies) with information that includes:

  • The CEO’s paid compensation with adjustments for pensions and equity awards and an average of the compensation paid for other company executives.
  • The total executive compensation paid for the CEO and an average of the reported compensation paid for other company executives.
  • Total shareholder return (“TSR”) on an annual basis, using the definition of TSR from Item 201(e) of Regulation S-K.
  • Annual TSR of peer group companies, as identified by the company in its stock performance graph or compensation discussion. (Smaller reporting companies are exempt from this requirement.)

Using the data provided in the table, reporting companies would be required to describe the relationship between the executive compensation paid and the company’s TSR as well as the relationship between the company’s TSR and the TSR of its peer group.

The proposed rules apply to all reporting companies except those that are exempt from the statutory requirement, including registered investment companies, foreign private issuers and emerging growth companies.

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