Center Members Rally Ahead of SEC Roundtable

• The group discussed the importance of the CD&A in providing investors with a meaningful description of how compensation decisions are made and insights into the pay and performance alignment. 

• However, there are serious concerns over comparability of prescriptive items and inconsistency of information due to varying formulaic definitions. 
   

1. The Summary Compensation Table 

• Timing of awards. Requires employers to report awards that are inconsistent with the timing of the performance cycle and how pay decisions are made. For example, equity-based awards are reportable at the grant date fair value while non-equity incentives are reported in the fiscal year in which the performance period concludes. 

• Unearned compensation. The pension value and non-qualified deferred compensation column is primarily driven by interest rates and changes in the stock market- not a useful snapshot of take-home pay.

• Why Five NEOs? The group questioned the value of listing three additional execs (outside the CEO and CFO) who may not be consistent from year to year and not comparable across companies. Over-disclosure here could drive pay practices instead of illuminating them. Reducing the number of NEOs could offer relief without sacrificing investor benefit.
   

2. Other Compensation Tables 

• The group flagged duplicative data in tables on outstanding equity, plan-based grants, and golden parachutes — much of it already discussed elsewhere or based on scenarios investors rarely ask about. 

3. Pay Versus Performance 

Of all disclosures, none were more critiqued than PVP. Here’s what you had to say: 

• Tying CAP to unvested equity valuations leads to misleading, even negative, figures and is costly to calculate. 

• Comparing CAP to net income - a measure not commonly used in incentive design - isn’t meaningful for investors. 

• The mandate to select a company specific performance metric forces companies to choose between multiple metrics that are extremely important.

4. Pay Ratio 

• While few see value in it, for most companies it’s become easier and cheaper to calculate. It may be that this isn’t worth a full-scale regulatory battle vs. other demands.
   

5. Clawbacks 

• The new rules, while well-intended, are a compliance minefield, especially with “little r” restatements. The group favored more board discretion and warned of unintended tax consequences for executives on the receiving end of clawbacks.

• You will receive a joint survey from us and the Society for Corporate Governance early next week. Please take this survey! It will provide important information the SEC can use in their rulemaking.

• If you have other suggestions on how to improve the existing rules, please reach out to us! We will incorporate the feedback into our advocacy strategy.