The SEC reopened the comment period on a proposal to amend the current executive compensation disclosure rule, Item 402 of Regulation S-K, to require that companies disclose the relationship between their executive compensation and financial performance.
The proposal was originally published in April of 2015 (see prior coverage). The proposed revisions to Item 402 implement Exchange Act Section 14(i) ("Proxies - disclosure of pay versus performance"), which was created by Dodd-Frank Section 953.
Commissioner Statements
SEC Chair Gary Gensler expressed support for the proposed rulemaking, saying it would "strengthen the transparency and quality of executive compensation disclosure." Mr. Gensler also noted that, if adopted, the proposal would "fulfill a mandate from Congress under the Dodd-Frank Act of 2010."
Commissioner Caroline A. Crenshaw also supported the reopening of the comment period, observing how executive pay practices have changed since 2015. Ms. Crenshaw stated that it was important to re-solicit public feedback, noting that companies are now "increasingly linking executive pay to environmental, social, and governance ("ESG") measures."
Commissioner Allison Herren Lee expressed support for the action and focused on changes involving smaller reporting companies, stating that "smaller reporting companies today would account for 45 percent of all companies that would be subject to the rule's requirements." She added: "[i]t would be helpful to hear from commenters as to whether we should include exemptions for smaller reporting companies in the final rule and, if so, how best to calibrate them."
Commissioner Hester M. Peirce dissented, stating she would have favored a release that asked the public "whether [the SEC] should permit companies greater flexibility to determine which financial performance measure is appropriate in this context and to determine how to calculate executive compensation actually paid."
Primary Sources
- SEC Release No. 34-94074: Reopening of Comment Period for Pay versus Performance
- SEC Chair Gary Gensler's Statement of Support
- SEC Commissioner Caroline A. Crenshaw's Statement of Support
- SEC Commissioner Allison Herren Lee's Statement of Support
- SEC Commissioner Hester M. Peirce's Statement of Dissent
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