SEC Adopts Pay Versus Performance Disclosure Rules
By Rani Doyle
On August 25, the SEC adopted amendments to its rules to require registrants to disclose information reflecting the relationship between executive compensation actually paid by a registrant and the registrant’s financial performance. The rules implement a requirement mandated by the Dodd-Frank Act. The Commission proposed pay versus performance disclosure rules in 2015 and reopened the comment period on the proposal in January of this year.
New Item 402(v) of Regulation S-K will require registrants to provide a table disclosing specified executive compensation and financial performance measures for the registrant’s five most recently completed fiscal years.
Registrants will be required to include in the table, for the principal executive officer (“PEO”) and, as an average, for the other named executive officers (“NEOs”), the Summary Compensation Table measure of total compensation and a measure reflecting “executive compensation actually paid,” calculated as prescribed by the rule.
The financial performance measures to be included in the table are:
- Total shareholder return (“TSR”) for the registrant;
- TSR for the registrant’s peer group;
- The registrant’s net income; and
- A financial performance measure chosen by the registrant and specific to the registrant (the “Company-Selected Measure”) that, in the registrant’s assessment, represents the most important financial performance measure the registrant uses to link compensation actually paid to the registrant’s NEOs to company performance for the most recently completed fiscal year.
New Item 402(v) also will require a registrant to provide a clear description of the relationships between each of the financial performance measures included in the table and the executive compensation actually paid to its PEO and, on average, to its other NEOs over the registrant’s five most recently completed fiscal years. The registrant will be required to also include a description of the relationship between the registrant’s TSR and its peer group TSR.
Additionally, a registrant will be required to provide a list of three to seven financial performance measures that the registrant determines are its most important measures (using the same approach as taken for the Company-Selected Measure). Registrants are permitted, but not required, to include non-financial measures in the list if they considered such measures to be among their three to seven “most important” measures.
These disclosure rules do not apply to emerging growth companies, registered investment companies, or foreign private issuers.
The Final Rules state that companies will need to comply for fiscal years ending on or after December 16, 2022.
Reminder: New Rules for Universal Proxy Cards in Contested Director Elections Go into Effect
By Bella Zaslavsky, K&L Gates LLP
As a reminder, compliance with the SEC’s final rules requiring the use of universal proxy cards in contested director elections is required for any shareholder meeting held after August 31, 2022. See last November’s Month-In-Brief: Securities Law post regarding the rule amendments. Among other things, the new rules (i) require the use of a universal proxy card containing the names of all director nominees on one ballot; (ii) create deadlines by which the company and dissidents are required to provide notice to one another of their candidates; (iii) prescribe presentation requirements for the design of the universal proxy; and (iv) amend prior proxy and proxy statement disclosure requirements related to voting options and standards in all director elections. Companies that have not already done so should be reviewing these new requirements and timelines carefully in preparation for proxy season.
SEC Issues C&DIs on Universal Proxy
By Rani Doyle
On August 25, the SEC issued three compliance and disclosure interpretations (C&DIs), in new section 139, related to Exchange Act Rule 14a-19.
- Question 139.01 addresses the ability of a dissident shareholder to change its slate of nominees after the Rule 14a-19(b) notice deadline due to a nominee’s decision to withdraw or a change in the number of director seats up for election.
- Question 139.02 deals with the registrant’s obligation to comply with Rule 14a-19(b)’s notice requirements in the case of a contested election in which more than one dissident shareholder intends to present a slate of director nominees.
- Question 139.03 addresses the registrant’s obligation under Rule 14a-5 to disclose in its proxy materials Rule 14a-19(b)(1)’s requirement that a dissident provide notice of its nominees at least sixty calendar days before the anniversary of the prior year’s annual meeting in situations where the registrant’s advance notice bylaw provides for an earlier notification date.
The summary above was posted in thecorporatecounsel.net blog dated August 29, 2022.