The SEC recently announced it has re-opened comments on its 2015 proposed (but never finalized) Dodd-Frank Pay for Performance rule. The Center-opposed rule was problematic as proposed but has been made even more complicated with several additions, including new performance metrics that each company would be required to disclose.
In 2015, the Center submitted an extensive series of comments highlighting multiple concerns with the proposed rule including failure to provide a clear picture of the pay for performance link; its tacit support of TSR as the sole metric for performance; and sacrificing accuracy for comparability by forcing registrants to adhere to a standardized table.
According to a new fact sheet and the proposal, the SEC did not implement substantial changes. Rather, the Commission added requirements such as including pre-tax net income and net income versus CEO and NEO pay. Companies may include an additional custom performance metric and must include a separate table with the “five most important performance measures used to determine compensation actually paid.”
Outlook: A pay-for-performance disclosure rule is required by the Dodd-Frank Act, so the SEC is required to come up with a regulation. However, as Commissioner Hester Peirce stated in her dissent, it is hard to understand how the SEC seeks to add sorely needed discretion and flexibility to this rule through “a flurry of new prescriptions,” none of which address the concerns of commenters on the original rule. The Center will comment within the truncated 30-day period (which began on Feb. 1) and will seek to engage members quickly as part of that process.