On August 25, 2022, the Securities and Exchange Commission adopted amendments to its rules to require registrants to disclose information reflecting the relationship between executive compensation actually paid by a registrant and the registrant’s financial performance. The rules put into effect a requirement mandated by the Dodd-Frank Act. The SEC had proposed pay versus performance disclosure rules back in 2015, but the Commission decided to reopen the comment period on the proposal earlier this year.

The rules will apply to all reporting companies, except foreign private issuers, registered investment companies, and Emerging Growth Companies. Smaller Reporting Companies are afforded scaled disclosure requirements under the rules.

New Item 402(v) of Regulation S-K will require registrants to provide a table disclosing specified executive compensation and financial performance measures for their five most recently completed fiscal years. Regarding measures of performance, a registrant will be required to report its total shareholder return (TSR), the TSR of companies in the registrant’s peer group, the registrant’s net income, and a financial performance measure chosen by the registrant. Using such information, registrants will be required to describe the relationships between the executive compensation actually paid and each of the performance measures, as well as the relationship between the registrant’s TSR and the TSR of its selected peer group. In addition, the amendments will require the registrant to disclose a list of three to seven financial performance measures that it determines are its most important performance measures for linking executive compensation actually paid to company performance.

The new rules will become effective 30 days following publication of the release in the Federal Register. Registrants must begin to comply with these disclosure requirements in proxy and information statements that are required to include Item 402 executive compensation disclosure for fiscal years ending on or after December 16, 2022