The Advisors' Blog

One of the sessions that I am most excited for at tomorrow’s “19th Annual Executive Compensation Conference” is the panel on key compliance steps for the SEC’s new pay versus performance rules. This session includes FW Cook’s Bindu Culas, Weil Gotshal’s Howard Dicker, Ropes & Gray’s Renata Ferrari, and Latham’s Maj Vaseghi. When the rules were issued in August, we immediately extended the time slot for this session, so that we could give due attention to the complexities of the rule and the initial action items that are needed to comply.

However! There is a lot to talk about – more than can be covered in just one hour. This recent memo from Sustainable Governance Partners highlights one aspect – whether the newly mandated pay versus performance disclosure will affect investors’ voting decisions. Here’s an excerpt:

At this point… we think the jury is still out. These requirements are intended to greatly improve transparency and standardize the calculations and presentation of this data, thereby providing investors with consistent, comparable information from all companies. Ideally, the end result is better-informed voting decisions. But as we know, sometimes standardization comes at the cost of nuance; and many will note the burden of further disclosure, namely the calculation of Compensation Actually Paid. It’s undoubtedly more complicated than dropping a grant date fair value into the Summary Compensation Table, as equity awards need to be re-valued at the end of each year or at the time of vesting.

Perhaps like the CEO Pay Ratio disclosure, the utility of the PVP disclosure will begin to grow over time. In the first year of this disclosure, however, we expect PVP disclosure will not be widely influential on institutional investors or the proxy advisors, each of which will have little time to incorporate this new data into their quantitative pay and performance models.

Ultimately, the usefulness of this disclosure will be determined by the market. Do investors feel better informed? Does the disclosure properly identify pay and performance disconnects? As issuers engage with institutional investors this Fall, we recommend asking investors for their thoughts on the new disclosure – in particular, how they will be using the new disclosure to evaluate and/or compare executive compensation plans.

Because of all of the questions that are arising with this rule – and the work that will be required – we are hosting a 3-hour special session on November 10th from 1-4pm Eastern. This special session will be a critical follow-up discussion to the panel at this Friday’s conference.

Our November 10th special session will dive into the many interpretive questions that advisors and boards are struggling to understand (with Sidley’s Sonia Barros, Compensia’s Mark Borges, WilmerHale’s Meredith Cross, EY’s Mark Kronforst, and Morrison Foerster’s Dave Lynn), the big picture impact (panelists include SGP’s Rob Main and ISS Corporate Solutions’ Jun Frank), and walk through a sample disclosure that Mark Borges & Dave Lynn are preparing (with additional commentary from Fenwick’s Liz Gartland and Gibson Dunn’s Ron Mueller). Sign up now, and join us on November 10th.

Make sure to also keep watching our “Pay-for-Performance” Practice Area for new memos about this rule, as we all process what compliance will look like. Although a number of heavy-hitter law firms, compensation consultants and trade organizations are urging the SEC to postpone the compliance date for these rules until the 2024 proxy season, there is no sign yet that the SEC is going to do that. Full steam ahead…

– Liz Dunshee