UPDATE: SEC Publishes Text of Proposed Pay-Versus-Performance Disclosure Rule: Focuses on Relationship of Executive Compensation Actually Paid Versus Annual Total Shareholder Return; Two Commissioners Dissent, Citing Lack of Flexibility and Concerns over Short-Termism

Sullivan & Cromwell LLP - May 1, 2015

On Wednesday, the SEC proposed a rule that would require SEC registrants to disclose the relationship between named executive officers’ “actual” pay and the registrant’s and its peers’ total shareholder return, over each of the registrants’ five most recently completed fiscal years. This proposed rule would implement Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and would require new disclosure in proxy statements and information statements in which executive compensation disclosure is currently required pursuant to Item 402 of Regulation S-K. The rule would apply to SEC registrants, other than foreign private issuers, registered investment companies and emerging growth companies.

The proposal was approved by a 3-to-2 vote, with Chair White being joined by Commissioners Aguilar and Stein in voting for the measure while Commissioners Gallagher and Piwowar voted against the proposal.  The dissenting Commissioners raised concerns regarding the overly prescriptive nature of the required metrics, which do not allow for a principles-based analysis based on how the company views pay and performance, as well as concerns over the impact of focusing corporate and investor attention on stock price movements over short-term periods.

Comments are due 60 days after publication of the proposal in the Federal Register.  The proposing release does not indicate when the disclosure would take effect, if adopted.