July 25, 2023
PVP Next Steps
This WTW memo addresses the next steps — both for disclosure and compensation-setting — for companies with their first proxy season of PVP disclosures behind them. In the off-season, WTW recommends that companies:
– Review peer disclosures and any SEC comment letters to understand normative market practices.
– Collect and analyze readily available peer data.
– Understand how external observers will use and interpret PVP.
Here’s an excerpt on the compensation-setting piece:
WTW recommends that companies start to collect CAP data for compensation peer groups and understand how the information could fit into existing frameworks for assessing alignment of pay and performance.
Understanding how similar or dissimilar the findings are utilizing CAP when compared to current approaches of assessing pay and performance alignment will indicate whether these are a helpful supplement or potential replacement of existing analyses in the future.
Additionally, for any companies that might not have been performing pay for performance alignment tests with regularity, the new disclosures provide a much easier avenue for assessments than prior frameworks where compensation needed to be calculated by the NEO for each peer.
Liz recently blogged about a Semler Brossy memo that argues that, even in the post-PVP era of “compensation actually paid,” older, time-tested approaches to assessing the link between pay & performance — like more traditional realizable pay analyses — will continue to be important for boards and compensation committees. Compensation committees certainly won’t want to limit the data they reference now that CAP is available, but this WTW memo highlights some benefits of using CAP as well:
CAP, while arguably more complex to calculate for individual companies, will have several advantages in pay and performance analyses that use peer data:
– Ease of collection: Straightforward to collect from peer disclosures
– Comparability: Consistent calculation methodologies allow for comparability across companies
– Transparency: Shareholders and other external observers have access to the same underlying data
– Meredith Ervine