Investors wanting to see how companies connect executive compensation and company performance have help this proxy season from a new SEC disclosure rule, plus an interactive tracker from Farient Advisors, an executive compensation and corporate governance consultant.
After years of delays, the Securities Exchange Commission adopted the pay-for-performance rule in August, and reporting has started showing up in corporate 2023 proxy filings. The rule tracks actual compensation paid, including stock awards, pension benefits and other compensation, along with performance measures such as total shareholder return and net income.
One new definition is compensation actually paid, or CAP, which calls for companies to be more descriptive of their executive compensation process, particularly the relationship between pay and company performance.
Companies must now also report total shareholder return for themselves as well as their peer group, along with net income and up to seven financial performance measures relevant to the company.
Farient's tracker analyzes the SEC-mandated disclosures for S&P 500 companies, along with pay-related trends in total shareholder return within corporate peer groups, and alignment between compensation actually paid and financial performance. It also highlights the top 10 highest and lowest-paid CEOs by sector based on CAP.
It will be updated weekly as more proxy filings come in.
So far, only 12% of S&P 500 companies are providing more than just basic metrics, Farient found, with that minority giving more information on their pay-for-performance philosophy or their compensation structure or approach.
"The impetus for this regulation was related to alignment with performance. The approaches so far just hew to the requirement and then move on," said Brian Bueno, Farient's ESG leader, in an interview. That might prove frustrating for investors this first year of reporting, but "it forces the companies to focus on pay value. It at least puts the data side by side," he said.
"It gives another perspective, especially for companies that were not talking about realizable pay. It tells investors how these companies are actually paying," Mr. Bueno said.
