Final Pay vs. Performance Rules: Teaching Old Disclosure New Tricks

On August 25, 2022 the SEC adopted final rules (the so-called “pay vs. performance” rules) that will require U.S. public companies (including smaller reporting companies (“SRCs”) but excluding emerging growth companies, foreign private issuers, and registered investment companies) to disclose information reflecting the relationship between executive compensation “actually paid” and company financial performance for the five most recently completed fiscal years (three years for SRCs).

The disclosure will be required pursuant to a new subsection (v) to Item 402 of Regulation S-K (“Item 402”) and is effective for a company’s proxy or information statement covering a fiscal year ending on or after December 16, 2022.

The final rules will go into effect on October 8, 2022 which means that most companies must comply with the disclosure for the fast-approaching 2023 proxy season. Given the complexity of the final rules, extensive calculations and disclosures, and compressed timeline, companies should begin the process of gathering necessary information and discussing the best way to present the disclosure with their advisors and internal constituents.

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