Published on: March 5, 2022
Authors: Chatrane Birbal
The Center submitted comments to the SEC this week in response to the reopening of the comment period for the 2015 Dodd-Frank Pay for Performance rule. In our comments, we reiterated the Center’s concerns about several aspects of the 2015 proposal and urged the Commission against adopting inflexible, prescriptive, one-size fits all performance metrics in a mandated table.
Building on our initial comments in 2015, the Center urged the Commission to consider several concerns:
- The mandated pay for performance table required by the rule is unworkable and should be scrapped. Instead, the SEC should adopt a principles-based rule that allows companies to effectively explain the relationship between pay and performance.
- Requiring the disclosure of prescriptive financial performance metrics (i.e., pre-tax net income and net income) is ineffective because there is no single metric or group of metrics that accurately reflects value creation for all companies.
- The 2015 Proposal’s definition of “compensation actually paid” does not accurately reflect that term. The Center believes the Commission should fundamentally rethink that definition, particularly as it relates to stock options and pension values.
In addition, we noted that given the prevalence of pay for performance disclosure and the extensive resources available to investors to determine performance, it is not clear whether investors need or want the standardized, tabular disclosure contained in the 2015 Proposal, or how such information would enhance investors’ understanding about the link between corporate pay and performance.
Ultimately, the Center cautioned the Commission that if a rule like the 2015 Proposal is finalized, it would create more confusion than clarity for investors.