SEC Reopens Comment Period for Executive Compensation Disclosure Requirements

The Securities and Exchange Commission today reopened a comment period on a proposed rule requiring new disclosures concerning companies’ executive compensation. The rule—which was originally proposed in 2015 but never finalized—would require a reporting company’s proxy statement and other disclosures to include a table showing actual compensation paid to key executives; the company’s annual total shareholder return, as calculated under SEC Regulation S-K; and the annual total shareholder returns of a peer group of companies.

Under the proposed rule, the reporting company would be required to discuss the relationships among the disclosed compensation numbers, its total shareholder return and the comparable peer group information. The disclosures would be required for the past five fiscal years, or three years for smaller companies, which would also be exempt from the peer group comparison requirement. All reporting companies would be subject to the new disclosures, except foreign private issuers and certain specialized entities such as mutual funds. The disclosure requirements would apply to the “named executive officers” for whom compensation information is currently required.

As part of its request for comments, the SEC is also seeking feedback on additional requirements it is considering including: whether registrants should be required to disclose additional performance measures beyond shareholder return and whether pre-tax net income and net income would be useful financial measures, among other things. Comments will be due 30 days after publication in the Federal Register.

This proposal is separate from a joint proposal (not yet adopted) that was issued by six federal financial regulatory agencies in 2016 that would prohibit incentive-based compensation arrangements for executives that could encourage excessive risk-taking behavior, which also included a clawback provision.