Most Companies Awaiting SEC Guidance Before Disclosing Pay for Performance, Says Study

November 07, 2014

A majority of companies are waiting for the SEC to define the Dodd-Frank Pay for Performance rules before providing supplemental disclosures in their proxy statements, a new Towers Watson survey finds.  According to the survey, 60 percent of companies conducted a pay for performance assessment in 2013, but nearly two-thirds of those companies (63%) chose not to disclose the assessment in their 2014 proxies, compared to 44 percent two years ago.  The survey found that only 30 percent of companies that did a pay for performance analysis disclosed their findings.  Most (76%) said this was because they were waiting for SEC rules to be issued, while about a third noted they were concerned about setting a precedent for future disclosures.  Nearly all of the companies surveyed (96%) that conducted a pay for performance analysis compared pay to their own peer group and most (79%) used a three-year period to define performance.  Sixty percent used a definition of pay other than Summary Compensation Table, with 44 percent using some form of realizable pay.  The survey also polled companies on their views regarding what approach the SEC should take when drafting a pay for performance rule, and found that more than half (56%) want the SEC to define key components of the disclosure but "let companies determine presentation," while a surprising 29 percent would prefer the SEC to define a prescriptive approach that "will be consistent across companies," perhaps reflecting frustration and anxiety at the vague and uncertain nature of the Dodd-Frank mandate and the considerable length of time the SEC has taken to propose a rule.  The Association's Center On Executive Compensation continues to urge the SEC to permit flexibility in crafting the Dodd-Frank pay for performance disclosure, while narrowing the wide variability in supplemental pay disclosures currently used by companies.