SEC Official Unveils Ambitious Executive Compensation Proxy Disclosure Review Project

November 20, 2015

Noting that investors have "continued to indicate a general dissatisfaction with the clarity and readability of executive compensation disclosure," Keith Higgins, Director of the SEC's Division of Corporation Finance, announced this week that the Commission is expanding its comprehensive review of corporate disclosures to include an examination of the descriptions of executive compensation in the proxy and the accompanying tables.  In remarks to the American Bar Association's National Institute on Executive Compensation, Mr. Higgins said the staff of the Division of Corporation Finance is "hard at work" on the Disclosure Effectiveness Project, which will re-examine how companies convey information in the disclosure regime.  The Project was started by the SEC two years ago and initially focused on a review of business and financial reporting of annual and quarterly reports.  However, Mr. Higgins stated that the next priority would be executive compensation and governance information.  Specifically, Mr. Higgins noted the staff would examine:

  • The Compensation Discussion & Analysis (CD&A):  Saying that Regulation S-K currently includes 22 points of information to consider in fulfilling the CD&A mandate, Mr. Higgins suggested evaluating whether the current structure unnecessarily contributes to complexity and undermines the ability of companies to explain their programs, in light of the impact of "say on pay" on disclosures.
  • The Compensation Tables:  Calling the Summary Compensation Table the "cornerstone" of the SEC's executive compensation disclosure, Mr. Higgins asked whether the table could be improved, and specifically whether the conflict between the timing of cash and equity within the table "is a problem worth fixing."  With regard to the other tables, Mr. Higgins asks whether they offer the most effective presentation of executive compensation and whether they should be disclosed online rather than in the proxy.
The Association's Center On Executive Compensation will engage with the SEC to provide its Subscribers' perspectives on changes that would make the executive compensation disclosure regime more effective and enhance investor understanding.