Similar to the current situation in which we find ourselves, there was some head-scratching when the SEC originally proposed pay vs. performance rules in 2015. For a few years, though, some companies were voluntarily disclosing a “pay vs. performance” graph in the proxy statement – as an acknowledgement of the proposal and also because investors & proxy advisors were incorporating “pay-for-performance” metrics into say-on-pay models.
Yet, as we’ve noted, those disclosures have been dropping off. A recent Equilar blog underscores that trend:
In 2021, just 9% of the Equilar 100 — the 100 largest U.S. public companies by revenue—disclosed a graph that showed the relationship between their executives and financial performance. While this is up one percentage point from 2020, the figure is down overall by nearly 50% since 2017 when 18.2% of companies disclosed a Pay for Performance graph. The percentage of companies that disclosed a Pay for Performance graph has also declined from 2017 to 2020, before slightly rebounding in 2021. Of course, given the SEC’s August announcement, the prevalence of disclosures will certainly accelerate in the coming years.
The question is, will these voluntary disclosures fall by the wayside in 2023, now that the SEC has mandated a format for pay vs. performance disclosure? My guess is that they will. There are already going to be multiple defined terms between the CD&A, executive compensation tables, and the new pay vs. performance disclosures. It will be important to tell a clear story, and adding yet another graph to the mix may not be the best way to do that. On the other hand, if the mandated format suggests that pay & performance are misaligned at certain companies, perhaps they will use supplemental disclosures to overcome that.