Following a mandate from the Dodd-Frank Act, the Securities and Exchange Commission (SEC) has proposed rules requiring companies to disclose executive pay and performance for itself – and performance information for other companies in a peer group – in a single table.
In addition, the company would be required to tag the information in eXtensible Business Reporting Language (XBRL) so it can easily be charted in an interactive format by investors and analysts.
“These proposed rules would better inform shareholders and give them a new metric for assessing a company’s executive compensation relative to its financial performance,” SEC Chairwoman Mary Jo White said in a release announcing the proposal. “The proposal would require enhanced disclosure that can be compared across companies.”
The information would be required in any proxy or statement where executive compensation disclosure currently is required. Information that would be disclosed in the table includes:
- Executive compensation actually paid for the principal executive officer, which would be the total compensation as disclosed in the summary compensation table already required in the proxy statement, with adjustments to the amounts included for pensions and equity awards. The amount disclosed for the remaining named executive officers identified in the summary compensation table would be the average compensation actually paid to those executives.
- The total executive compensation reported in the summary compensation table for the principal executive officer and an average of the reported amounts for the remaining named executive officers.
- The company’s total shareholder return on an annual basis, using the definition of total shareholder return (TSR) included in Item 201(e) of Regulation S-K, which sets forth an existing requirement for a stock performance graph.
- The TSR on an annual basis of the companies in a peer group, using the peer group identified by the company in its stock performance graph or in its compensation discussion and analysis.
All companies would be required to disclose the information for the last five fiscal years, except for smaller reporting companies, which would be required to provide disclosure only for the last three fiscal years.
The proposed rules would provide a phase-in for all companies. Companies, other than smaller reporting companies, would be required to provide the information for three years in the first proxy or information statement in which they provide the disclosure, adding another year of disclosure in each of the two subsequent annual proxy filings that require this disclosure. Smaller reporting companies initially would provide the information for two years, adding an additional year in their subsequent annual proxy or information statement that requires this disclosure.
In addition, smaller companies would be granted a phase-in period of three years to tag the disclosures in XBRL.
However, a recent bill passed through the House Financial Services Committee could change the XBRL tagging requirements. The bill, known as the Small Company Disclosure Simplification Act (H.R. 1965), would exempt issuers with total gross assets of less than $250 million from requirements to use XBRL in any financial statements or reporting. The exemption would last a minimum of three years.
Comment for the proposed rules will be accepted through July 6.