Proposed Pay for Performance Disclosure Published in Federal Register; HR Policy Conference Call 5/20

May 08, 2015

This week, the proposed rule implementing the Dodd-Frank pay for performance requirement was published in the Federal Register, while SEC staff provided additional clarification on a key definition involving "total shareholder return" (TSR).  In anticipation of gathering information and drafting a comprehensive and informative comment letter, the Association will host a conference call on May 20 at Noon during which the Center On Executive Compensation staff will describe and analyze the implications of the proposed rule while also gathering feedback for submission in the comment process.  The call will cover the implications of:

  • The SEC's decision to define executive "compensation actually paid," which creates an additional table that modifies the total compensation number in the Summary Compensation Table by valuing restricted stock, performance shares and stock options at the vesting date, with options valued using a recalculated accounting expense, and modifies the pension value adjusted by removing changes in actuarial present value generated by reductions in the discount rate or mortality table changes, but including actuarially determined "service costs" for services rendered by an executive during the applicable year, even if an individual is not vested in the benefit.

  • The decision to use "cumulative TSR" as the only performance measure, as opposed to combining TSR with other measures of financial performance.  This week, the SEC staff clarified that the definition of "cumulative TSR" is the same as that used to construct the performance graph that companies disclose in their 10-K Annual Report.  The clarification came in the wake of significant confusion due to inconsistent language between the regulatory text of the proposed release and the explanatory text which resulted in several differing interpretations as to how the proposed rule intended to define the performance aspect of the disclosure. 

  • The additional and required narrative disclosure component accompanying the required standardized table as well as the SEC's suggestion that companies may continue to provide supplemental disclosures to "reflect the specific situation of the [company] and its industry."
Click here to register for the call.