The Advisors' Blog

If you joined us for the “Pay Versus Performance: What’s New for Year Two” panel during our 20th Annual Executive Compensation Conference, you’ve already heard a high-level overview of initial SEC comments on PvP disclosures to date and first-year mistakes seen by our panelists. Since then, Compensation Advisory Partners released this summary of the first 16 comment letters. The comments focus on missing required disclosures and issues with calculating “compensation actually paid.” Here are the common topics noted in the memo, separated by disclosure issues and CAP calculation issues:

– Missing required elements of the disclosure, such as a description of the relationships between Compensation Actually Paid (CAP) and the metrics or the list of 3-7 financial performance measures used to link CAP with company performance;
– Including multiple Company-Selected Measures, or not including the Company-Selected Measure in the tabular list of 3-7 most important financial performance measures;
– Failing to provide a reconciliation of non-GAAP measures selected as the Company-Selected Measure (CSM) against GAAP financial statements;
– Using a TSR peer group that does not match either the industry group used for Regulation S-K in the 10-K performance graph or the compensation peer group disclosed in the CD&A; or
– Incorrect footnote descriptions to the table that suggest misinterpretation of the rules.

– Not including or not identifying all NEOs who served in each year in the table;
– Using partial compensation received for the year for individuals in the table (e.g., if an individual is promoted to a Named Executive Officer (NEO) role during the year, only including compensation earned for the period served as an NEO); and
– Footnotes indicating a “year over year” change in fair value for awards that should be valued as of the date of vesting, rather than at year end.

The memo then lists and summarizes each comment letter, ranked by the recipient company’s annual revenue.

Our conference panelists highly recommended that companies start thinking now about what needs to change for year two of PvP to make sure this year’s preparation process is less of a mad rush than last year’s, and they shared great practice pointers for the second year of disclosure. For example, they suggested that companies shouldn’t feel obligated to maintain the same format for the relationship disclosure or stick with last year’s CSM if they now think another metric would be more appropriate (even if the compensation program is largely similar). If you missed our conferences, remember that you can still purchase access to the archives (including on-demand video plus easy-to-reference transcripts), and we are now offering the ability to earn CLE credit for watching on-demand sessions as well.

– Meredith Ervine