The Advisors' Blog

– Liz Dunshee

I’ve blogged a couple of times about what might be a growing push to eliminate the “Reg G” exception for CD&As. This Audit Analytics blog says that more than two-thirds of the S&P 500 now use non-GAAP measures to establish compensation targets – and that number could go even higher if companies integrate ESG performance criteria and EVA metrics into their programs. Should we care? Well…

A recent study from B-School profs at Cornell & MIT that says companies that use non-GAAP earnings end up over paying their C-suite executives and that non-GAAP measures aren’t a truer picture of business. But what probably matters more (to the SEC, to shareholders, to courts) is whether investors can understand how those payouts are calculated (and the main complaint in CII’s April rulemaking petition was that right now, that’s really difficult).

The blog goes on to consider Corp Fin comment letter trends on non-GAAP metrics and says the Staff is no longer just looking at how non-GAAP figures are disclosed, but diving deeper to consider whether the adjustments are misleading. So far, though, the Staff isn’t commenting on non-GAAP measures used exclusively for executive compensation purposes.