New SEC Rules Lead To Changes In Executive Compensation Disclosure

New SEC Rules Lead To Changes In Executive Compensation Disclosure

According to a survey by professional services firm Towers Watson, close to one third of American public companies anticipate significantly changing their approach to disclosure of executive compensation due to the SEC’s proposed pay-for-performance disclosure rules. Moreover, the survey also found that most firms are likely to offer shareholders additional information beyond what the proposed rules will require.

This survey of 453 corporate executives and compensation professionals was undertaken on June 4th, as a part of Towers Watson’s webcast on the new SEC rules.

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New SEC rules related to Dodd-Frank Act

A couple of months ago, the SEC issued proposed rules in regard to implementing provisions of the Dodd-Frank Act that require firms to disclose the relationship between actual executive compensation and the company’s financial performance. The new SEC rules would require company proxy statements to include a pay-versus-performance table and a break down of the relationship between pay and performance.

More on recent Towers Watson survey on executive compensation disclosure

The survey indicates that 33% of respondents anticipate the pay-for-performance disclosure rule will fundamentally change their approach to executive compensation disclosure. Furthermore, a solid 55% of respondents plan to do more than the minimum required under the SEC proposal: 37% are planning to disclose additional information and analysis to explain their pay-for-performance story, and another 18% will perform further pay-for-performance analyses, some of which may be publicly disclosed.

Of interest, the T-W poll also found that 46% of respondents have been waiting for the rules to be finalized before making some changes to their Compensation Discussion and Analysis (CD&A), and 10% will take the new rules as an opportunity to notably revamp their CD&A. Moreover, 51% plan to use the same peer group for their pay-versus-performance disclosure that they use when benchmarking total compensation.

Statement from Towers Watson Director

“With the SEC rules on the table, companies can carefully evaluate how they tell their pay-for-performance story to shareholders,” commented Steve Kline, a director in Towers Watson’s Executive Compensation consulting group and the practice’s pay-for-performance analytics team leader. “The fact that many companies expect to provide more information than the rules require is encouraging, although for many, the real challenge will be deciding the best way to present this information in their proxies.”

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