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Statement on Final Rule Regarding Pay Versus Performance

Aug. 25, 2022

Today, the Commission voted to adopt a rule requiring certain public companies to disclose information regarding their executives’ compensation and how such compensation relates to the company’s financial performance. I was pleased to support this rule—so-called “pay versus performance”—because it will strengthen the transparency and quality of executive compensation disclosure to investors.

In 2010, Congress under the Dodd-Frank Act directed the Commission to provide clear disclosure to investors on the relationship between companies’ executive compensation actually paid and financial performance. We proposed a rule in 2015 to implement this provision and reopened the proposal in January of this year. With this adoption, the Commission today has fulfilled Congress’s mandate.

The Commission has long recognized the value to investors of information on executive compensation. The first requirements for disclosures on executive compensation originated in the Securities Act of 1933.[1] Since then, the Commission from time to time has continued to update compensation disclosure requirements.

Building upon this long tradition of disclosure, today’s rule makes it easier for shareholders to assess a public company’s decision-making with respect to its executive compensation policies.

I am pleased that the final rule provides for new disclosures, describing which performance measures a company deems most important when determining what it pays executives. When we reopened the proposal, we asked about requiring companies to name and rank the five most important factors they used for this determination. Based on public comment, the final rule includes a more flexible requirement, allowing companies to disclose the three to seven most important measures in an unranked list.

I am also pleased that the final rule requires certain companies to provide a five-year history of pay versus performance-related metrics, with a shorter, three-year reporting requirement for smaller reporting companies. Companies will disclose several key performance metrics related to executive compensation. These key performance metrics include total shareholder return (TSR), peer group TSR, net income, and a measure specific to the company. In addition, companies will disclose two measures of the amount of compensation paid (the Summary Compensation Table total and the newly defined “compensation actually paid” total) to the principal executive officer (PEO) and, on average, to named executive officers (NEOs).

The Commission benefitted greatly from public comment on the proposal, and I thank the public for weighing in.

I think that this rule will help investors receive the consistent, comparable, and decision-useful information they need to evaluate executive compensation policies. That serves investors and our markets.

I’d like to thank the staff for their diligent work in preparing these amendments, including:

  • Renee Jones, Erik Gerding, Lindsay McCord, Betsy Murphy, Brian Galle, Jennifer Zepralka, Adam Turk, Deanna Virginio, Anne Krauskopf, Craig Olinger, Ryan Milne, Chris Windsor, Jeb Byrne, and Angie Kim in the Division of Corporation Finance;
  • Dan Berkovitz, D. Bryant Morris, Dorothy McCuaig, Ken Alcé, and David Russo in the Office of the General Counsel;
  • Jessica Wachter, Tara Bhandari, PJ Hamidi, Charles Woodworth, Rebecca Orban in the Division of Economic and Risk Analysis;
  • Brian Johnson, Amanda Wagner, and Amy Miller in the Division of Investment Management;
  • Kristin Pauley and Laura Metcalfe in the Division of Enforcement; and
  • Paul Munter, Natasha Guinan, Shaz Niazi, Mark Jacoby, Jonathan Wiggins, Larry Yusuf, PJ Theisen in the Office of Chief Accountant.

[1] See SecuritiesAct of 1933,Section 7(a) [15 U.S.C. 77g(a)] and ScheduleA, Paragraph 14 [15 U.S.C. 77aa(14)].

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