The L-Blast | February 2022
New Focus on Executive Pay for Performance
Executive compensation and pay for performance have always been a hot topic, but the SEC’s recent reopening for comments on its pay versus performance rule has put renewed focus on this highly debated issue. A push from the SEC to provide shareholders more transparency and a clearer correlation between executive pay and the company’s financial performance.
In this month’s L-Blast we provide information on the SEC’s proposed requirements and offer insights on performance metrics used to determine executive compensation. Total Shareholder Return continues to be the most prevalent measure, however, there has been a recent increase in the implementation of multiple metrics. This coincides with the SEC’s reopening as it considers whether additional performance metrics would better reflect the intention in the Dodd-Frank Act to provide shareholders with a more accurate approach to evaluating a company’s executive pay practices.
We hope you find this information insightful and aids in your executive compensation decisions. As always, let us know if you have any questions regarding the topics shared in this L-Blast, or if you need help developing your executive compensation strategy and how to disclose effectively in your proxy statement.
By Matt Brown and Kyle Lamport
It’s been nearly twelve years since The Dodd-Frank Act was enacted as a direct response to the financial crisis of 2008. The Act holds many sections detailing regulations to be enforced; however, a recent resurgence of proposed pay for performance mandates from 2015 have surfaced and are, once again, in the spotlight for consideration by the SEC.
READ MOREA Repeat Performance – U.S. SEC Taking Another Look At Executive Pay Versus Performance
The Securities and Exchange Commission (SEC) on January 28, 2022, reopened the comment period with respect to its pending “pay versus performance” proposal (Proposed Rule), which would generally require public companies to disclose how the executive compensation of named executive officers (NEOs) relates to the financial performance of the company. The Proposed Rule was previously discussed in our May 7, 2015 OnPoint.
CEO Compensation Increase Trends
CEO pay continues to be discussed extensively in the media, in the boardroom, and among investors and proxy advisors. Despite strong TSR in 2020, CEO pay remained flat due to the negative impact of the COVID-19 pandemic, particularly resulting from lower bonus payouts. CEO median total direct compensation (TDC; base salary + actual bonus paid + grant value of long-term incentives [LTI]) increased at a moderate pace in the first part of the last decade: in the 2% to 6% range for 2011-2016.
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