On Aug. 25, seven years after originally proposed, the Securities and Exchange Commission (the SEC) adopted the final pay versus performance rule required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2020. As further described below, the rule requires reporting companies (referred to here as registrants) to provide specific pay versus performance tabular disclosure; a clear description (graphically, narratively or a combination) of the relationship between actual executive compensation paid and financial performance measures; and a tabular list of three to seven financial measures representing the most important financial measures tied to actual compensation. These new disclosures, which are codified in Item 402(v) of Regulation S-K, must be provided in proxy statements and information statements in which executive compensation disclosure is required for fiscal years ending on or after Dec. 16. For calendar year-end companies, this means that the pay versus performance disclosure will be required in the proxy statement for the 2023 annual meeting of shareholders. Emerging growth companies, foreign private issuers and registered investment advisers are exempt from the rule while smaller reporting companies (SRCs) can provide scaled disclosures. Importantly, registrants will also be required to tag disclosure under the new rule in inline XBRL (except for SRCs, which will have until their third filing under the new rules to provide inline XBRL tagging).

Overview of Tabular Disclosure

The pay versus performance rule requires registrants to include tabular disclosure of the compensation “actually paid” to the registrant’s principal executive officer (PEO) and other named executive officers (NEOs) and certain performance measures. These performance measures include cumulative total shareholder return (TSR), the TSR of the registrant’s peer group, net income, and a financial performance measure selected by the registrant (the company-selected measure). SRCs are exempt from providing the peer group TSR and the company-selected measure.

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