The Securities and Exchange Commission on Wednesday approved new pay-for-performance requirement that means companies must now disclose the relationship between executive compensation and financial performance of the company.
Sources familiar with the vote said the amendments passed 3-2 in an open meeting Wednesday.
The amendments, under Section 14(i) of the Exchange Act, as mandated by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, would “require disclosure that can be compared across companies, while also continuing to allow companies flexibility in how they set forth their pay-vs.-performance relationship and how they supplement their disclosure to reflect their specific situation,” said an SEC statement preceding the vote.
“It's essentially going to require disclosure of how the CEO's pay and the average of the other people listed on the proxy, compares to the company's total shareholder return and the shareholder's return of their selected peer group,” said Steve Seelig, senior regulatory adviser at Towers Watson, in a telephone interview.
“The first thing is that right now in current proxies, only one-quarter of companies that we've reviewed provide a pay-for-performance,” Mr. Seelig said. “The vast majority of companies don't show anything on pay-for-performance, so in that sense it's going to add a brand new disclosure for most companies.”
Mr. Seelig added that since most institutional investors are fairly sophisticated in having their own policies or rely on proxy advisers, “we don't expect that say-on-pay votes are really going to change very much from what we've seen to date, absent a marked change in the economy.”
All companies, other than emerging growth companies, foreign private issuers and registered investment companies, will be required to make the disclosures.
The rule is pending a 60-day comment period.
