It’s been a couple years since I’ve blogged about FASB’s initiative to require companies to quantify labor costs and other income statement expenses. Even though the SEC hasn’t moved forward with detailed human capital disclosure requirements, “public business entities” are still going to need to start providing employee compensation info in the notes to financials in response to FASB Accounting Standards Update 2024-03, which was adopted in November 2024. This Deloitte guide explains what ASU 2024-3 will require and what in-scope companies should do to prepare. Here are a few key takeaways (also see this FASB alert):
The DISE standard introduces new requirements related to disaggregating certain income statement expense captions within the footnotes to the financial statements. These disclosures are required for annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027.
The ASU does not change the expense captions an entity presents on the face of the income statement or the recognition and measurement principles of other GAAP standards; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements.
An expense caption presented on the face of the income statement within continuing operations is considered relevant and therefore subject to disaggregation if it includes any of the following natural expense categories:
(1) purchases of inventory;
(2) employee compensation;
(3) depreciation;
(4) intangible asset amortization; and
(5) depreciation, depletion, and amortization (DD&A) recognized as part of oil- and gas-producing activities or other types of depletion expenses.
Entities will need to disaggregate relevant expense captions into these five natural expense categories (the “required expense categories”) in a tabular presentation. The tabular disclosure for each relevant expense caption will also include certain other expenses and gains or losses that must be disclosed under existing U.S. GAAP (the “tabular integration of other disclosures”), expense reimbursements, and other expenses when applicable. The ASU does not change or remove existing expense disclosure requirements; however, it may affect where that information appears in the notes to financial statements because the ASU requires entities to include certain current disclosures in this tabular format.
The requirement applies to “public business entities,” which the standard defines as entities:
– Required by the SEC to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).
– Required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.
– Required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.
– That have issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.
– That have one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including notes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.
An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.
The ASU does not apply to a not-for-profit entity nor an employee benefit plan.
The Deloitte guide points out that in-scope companies should prepare now for these disclosures, because they may need to collect underlying data may not currently be readily available beginning in 2027 (for calendar year companies) – and companies may need to consider estimates, information systems and reporting changes, and adjustments to processes and controls. The nature and extent of new information required are expected to vary by entity and industry – as illustrated in this separate Deloitte alert for consumer products and retail companies.
From a governance standpoint, this update obviously affects audit committees – and hopefully they are already discussing it. But as Meredith recently blogged, human capital is still on the agenda for many compensation committees as well. Comp committees may want to think ahead about how this new data will be presented and used – by the committee itself as well as other stakeholders.
Earlier this summer, the New York legislature passed the “No Severance Ultimatums Act” – also known as SB S372A. Although it’s still awaiting Governor Kathy Hochul’s signature, companies may want to track the bill because it will immediately amend New York law if signed. This Sheppard blog explains what the law will do if it’s adopted:
Under the Act, any employer offering a “severance agreement,” defined as an agreement offered upon separation of employment that requires the employee to release waivable claims against the employer, must notify the employee that:
– The employee has a right to consult an attorney about the agreement;
– The employee has at least twenty-one (21) calendar days to consider the agreement;
– The employee may revoke the agreement within seven (7) calendar days of signing;
– The agreement does not become effective and enforceable until after the revocation period expires; and
– The employee may make a knowing and voluntary choice to sign the agreement prior to the end of the consideration period, provided such decision is not induced by the employer through fraud, misrepresentation, a threat to withdraw or alter the consideration period, or by providing different terms if the employee signs early.
A severance agreement that does not comply with these provisions would be void and unenforceable.
The Sheppard team points out that these requirements are similar to the federal Older Workers Benefit Protection Act (“OWBPA”) – which applies to severance agreements made with employees aged 40 or older. The Act would expand these federal protections to most employees covered under the NYLL, regardless of age, with an exception for severance agreements negotiated pursuant to a collective bargaining agreement (provided the agreement specifically acknowledges the provisions of Section 215-d).
Our site doesn’t give employment law advice – or any legal advice, for that matter – but consider this a nudge to call up your friendly employment lawyer to evaluate how the law would apply to your company, and review and revise forms if needed. The Sheppard blog emphasizes the need to plan ahead, but also points out that there are some open questions:
If signed into law, the Act would take effect immediately. The Act does not include a grace period, which means employers may need to implement changes on short notice. In addition, any severance agreement that fails to meet the Act’s requirements would be rendered void and unenforceable, invalidating not only the severance agreement itself but also the employee’s release of claims. As a practical matter, an employer could find itself in the position of having paid severance to a departing employee only to learn that the release it obtained in exchange has no legal effect.
The Act is silent on its application to severance agreements that are already in progress at the time of enactment. Unresolved questions include whether agreements that have been delivered but not yet signed would need to be reissued in compliant form, and whether agreements executed shortly before the effective date, but still falling within what would constitute the Act’s seven-day “revocation” window, could be subject to challenge. In light of these uncertainties, employers should evaluate any pending New York severance agreements now and develop contingency plans, including extending existing deadlines or pausing the finalization of agreements until compliance can be confirmed.
Among other things, the blog also recommends revisiting standard scripts, correspondence and workflows used in communicating severance agreements, to ensure they don’t run afoul of the law and that payments aren’t processed before the revocation period ends.
FW Cook recently released its latest director compensation report, which examined non-employee director pay and design at 300 U.S. public companies across industries and market caps in 2026. As shared in the announcement, they found that:
– Pay increases are slowing/moderating, with total compensation interquartile ranges continuing to compress
– Company size remains a stronger pay differentiator than industry (spread of approximately $100,000 across size medians vs. $40,000 across sector medians)
– Core designs have changed little: equity remains approximately 60% of total pay, full-value awards are nearly universal, and 96% of companies use immediate or one-year vesting
– Technology remains the clearest sector outlier, with the highest total compensation and largest weighting to equity compensation
– Incremental committee retainers (both members and chairs) have shown little movement for several years
– Ownership guidelines and annual compensation limits are standard; retention requirements remain less prevalent
These reports are always helpful for benchmarking, so check out the detailed data in the full report for more if you’re looking to compare any of your practices. For example, the report shares:
– The average mix across the sample is 38% cash and 62% equity, similar to recent years.
– Across the sample, 90% of companies use a retainer-only structure for board cash compensation (aligned with last year).
– Additional pay for committee members is provided at 60% of the total sample, including 52% that use committee member retainers and 8% that use committee meeting fees (3% use both). About half of companies using committee meeting fees only provide them for meetings over a specific threshold.
– Across the sample, 92% of companies have director stock ownership guidelines (up from 90% last year), and 38% have stock retention requirements (usually alongside ownership guidelines). The most common guideline is to hold 5x the annual cash retainer within five years.
On stock ownership guidelines, they found that retention requirements varied a bit for large-cap companies:
The most common retention requirement is to hold some or all net after-tax shares until the ownership guideline is satisfied (66% of retention requirements), though large-cap companies also commonly require holding until retirement (46% of large-cap retention requirements), often by granting awards with built-in mandatory deferral (e.g., deferred stock units, or “DSUs”).
In the latest episode of “The Pay & Proxy Podcast,” I was joined by Cleary partner, Julia Petty. We discussed:
What we know about the status of the SEC’s executive compensation disclosure reform efforts
Highlights from the letters submitted in response to the SEC’s request for public comment
The SEC’s suspected areas of focus in any anticipated rule proposal
How the SEC’s May 2026 “Filer Status” proposal will impact executive compensation disclosures and Say-on-Pay
Potential complications for equity practices for companies that take advantage of semiannual reporting, if the SEC’s “Semiannual Reporting” rulemaking is finalized as proposed
If you have insights on compensation and proxy disclosures you’d like to share in a podcast, I’d love to hear from you. Email me at mervine@ccrcorp.com.
Last month, Liz shared part one of a two-part Pay Governance alert series regarding issues that are receiving the greatest attention in board meetings today. Part one focused on the external environment, regulatory landscape, investor landscape and proxy voting dynamics. Recently released part two focuses on compensation strategy – specifically how “boards are adapting their compensation programs and governance practices to address changing workforce dynamics, evolving leadership models, and emerging organizational risks.” If they’re not already, you may want to ensure these topics are on your compensation committee agenda to be discussed in the near future:
– Stick with PSUs or “Go Long”?
– Evolution from ESG Metrics to Broader Human Capital Focus
The alert goes into detail on each of these topics. Here’s what it has to say about the evolution of ESG metrics:
Rather than abandoning strategic measures altogether, many companies have shifted toward broader human capital-focused priorities in incentive programs. Metrics such as employee engagement, recruiting, retention, turnover, and talent development have remained prevalent. At the same time, traditional ESG metrics continue to be more widely utilized in Europe and other select international markets, where stakeholder expectations and regulatory frameworks are more supportive. For compensation committees, the implication is not simply replacing one set of metrics with another, but ensuring incentive plans continue to reinforce the strategic drivers of long-term value creation.
A recent academic paper featured in the CLS Blue Sky blog reported on the results of a study that sought to determine whether and how board refreshment impacted board decisions. As the latest Semler Brossy newsletter highlights, the authors found that refreshed boards are more likely to replace underperforming CEOs and more likely to pay for performance. The blog concludes:
[T]he results suggest that refreshed boards do not just look different. They appear to monitor differently. They are associated with stronger CEO dismissal discipline after poor performance and with stronger CEO pay structures that better connect performance and risk.
We also find that refreshment is associated with stronger pay-for-performance sensitivity. CEO wealth becomes more closely tied to stock price performance, and the difference is not trivial: It corresponds to tens of thousands of dollars in additional pay sensitivity for a board that has refreshed more than a typical peer. At the same time, refreshment is positively related to pay-for-risk sensitivity. This balance matters. Compensation should reward performance, but it should also give managers incentives to take appropriate risks rather than avoid valuable long-term projects.
The blog also shares questions that investors should ask and says companies should make their refreshment disclosure more visible. I’d also add that investors may be interested in compensation committee refreshment specifically, so it may be valuable to highlight that.
Readers of this blog are well aware that the SEC is considering rule changes that would make ~80% of companies eligible for scaled disclosure (which is at the proposal stage) – and that could overhaul line-item executive compensation disclosure requirements across the board (proposal forthcoming). These changes may give companies more leeway to decide what to put in the proxy statement – balancing the heightened risks that may come with including voluntary disclosure in a proxy statement and 10-K. But for at least some companies, the proxy statement – and pay disclosures in particular – may continue to be a valuable communication tool that goes beyond the black & white requirements of the rules.
This Farient Advisors blog says that companies that treat the proxy as only a compliance document may risk eroding their credibility with shareholders over time – whereas those who clearly explain decision processes and pay outcomes can build the type of trust that becomes important if the company has an off year or needs to secure a key vote. The blog provides 5 tips for strengthening proxy disclosure – not by adding length and technical details, but by explaining decisions. Here’s an excerpt:
1. Frame Pay Outcomes as the Result of Active Decision‑Making
The most effective disclosures explicitly acknowledge the committee’s role as a decision‑maker, not just a program administrator. Strong proxies:
– Highlight the key questions the committee debated
– Explain how competing performance signals were balanced
– Describe how judgment was applied within the incentive framework
This reinforces that pay outcomes reflect governance oversight, not automatic formula execution.
2. Provide Context Around Goal‑Setting Rigor
Shareholders are increasingly focused on whether goals were demanding when established, not simply whether they were achieved. Boards can improve disclosure by:
– Describing goal difficulty in directional terms
– Explaining how targets reflected business conditions at the time they were set
– Clearly articulating the rationale for any adjustments
The objective is not to disclose proprietary targets but to give investors confidence that the goals were set with appropriate rigor.
3. Treat Discretion as a Governance Decision Worth Explaining
When boards exercise discretion, the proxy should reflect the seriousness of that decision. Effective disclosure:
– Explains why discretion was necessary
– Describes alternatives considered
– Clarifies how the decision supports long‑term value creation
– Addresses whether the action sets a precedent
The more unusual the decision, the more important it is to articulate the board’s reasoning.
This blog from Meredith is also a helpful resource if your company is considering changing proxy disclosures in response to SEC rulemaking.
A few of our members have informed us that the Glass Lewis window for peer group submissions is open – through August 14th – for companies with annual meetings between October 2026 and February 2027. Glass Lewis shares the info by email to the designated company contact, rather than making a public announcement like ISS. In order to receive these emails about peer group submission windows, you need to opt in.
As I’ve shared in years past, not every company needs to submit something during this window. You really only do it if your peer group has changed since your last proxy statement and you want to make sure the proxy advisor considers that. Glass Lewis lists these reasons for why you may wish to update your peer group:
1. You recently disclosed an updated peer group on your website, Form 8-K, or elsewhere in the public domain, but it’s not in your most recent Form DEF 14A or Management Information Circular.
2. Your most recent proxy statement includes two peer groups (e.g., one for fiscal 2025 and another for fiscal 2026). Confirm your preferred peer group by submitting it.
3. You publicly disclosed your fiscal 2026 peer group with changes for fiscal 2027, but without listing the full fiscal 2026 group. Submit an update to confirm the fiscal 2026 peer group.
Glass Lewis has Glass Lewis has a rigorous, state-of-the-art peer methodology that informs our Pay-for-Performance Model, and our Say on Pay recommendations. Beginning with a company’s self-disclosed peers, Glass Lewis then includes investor views on both industry-based and country-based peers, in addition to the company’s peers-of-peers. This approach ensures additional screens based on corporate revenue, market capitalization, and assets; weightings also consider the source and frequency of confirmation, and peer rankings are based on a strength-of-connection approach that considers all potential peers, not just those resulting from the network effects of corporate disclosures.
To submit an updated peer group, you’ll need to carefully follow the instructions on this page. Note that the Peer Group Submission document was updated this year – so don’t use the old version. You also need to make sure to use the Glass Lewis portal to submit your information, as email submissions won’t be accepted.
We will get the latest scoop from ISS & Glass Lewis at our upcoming “Proxy Disclosure & 23rd Annual Executive Compensation Conferences” – happening October 12-13 in Orlando and virtually. Register now to ensure you get the information you need for your 2027 proxy season. You can register online or by contacting us at info@CCRcorp.com or 1-800-737-1271.
I don’t want to get too far ahead of ourselves with speculating about potential changes to the SEC’s executive compensation disclosure rules. But I will note that despite overall exuberance on the company side about the prospect of less onerous disclosure, there is also some acknowledgement that companies could lose benchmarking insight that is currently available through proxy disclosures. So, get it while you can! Mark Borges continues to share noteworthy proxy disclosure examples on his “Borges’ Proxy Disclosure Blog.” Here are a few of Mark’s recent updates addressing various aspects of compensation disclosures:
Mark doesn’t simply flag the disclosure – although even that is helpful! He also adds context and commentary from his years of experience. Members of this site can visit the blog – and can sign up to get that blog pushed out to them via email whenever there is a new entry. All you need to do is click the link on the left side of the blog and enter your email address.
If you aren’t yet a member with access to the Borges’ Proxy Disclosure Blog and all of the other resources on this site – such as our checklists, resource libraries, and the essential Lynn & Borges’s “Executive Compensation Disclosure Treatise” – email info@ccrcorp.com, call 1.800.737.1271, or sign up online.
Secondary peer groups — ”Supplemental peers,” “Reference peers,” etc. — are more prevalent now because they can contextualize programs and practices in the broader talent market. For example, the pay programs, performance leverage, and equity usage at industry-dominant companies are important information, even if the value of CEO pay is not a valid comparison.
Questions for the board:
1. Does the primary peer group sufficiently reflect sources and destinations of executive talent?