The Advisors' Blog

For the first year of pay versus performance disclosure in 2023, Corp Fin took a very high-level approach to comment letters and issued only futures-based comments. This year may be different.

Yesterday at the Northwestern Securities Regulation Institute, Corp Fin’s Chief Counsel Michael Seaman discussed the Division’s expectations for year 2 of this rule. Michael noted that the Staff expects that companies and their counsel have digested comments from the first year of disclosure, as well as the two rounds of CDIs that were issued last fall. In other words, go back and look at those now so that they’re fresh in your mind as you draft this year’s proxy.

While the disclosure review team hasn’t completely finalized its approach, it’s likely that the Staff may ask companies for more analysis and correction rather than simply a commitment to correct issues next year. The Staff is still not out to issue comments that will put your annual meeting date at risk unless there’s a major issue. But you may get a comment after your meeting that delves into disclosure details and requires you to respond with analysis. Michael also shared a few tips and observations for this year’s disclosure:

– Remember to include the required “relationship” disclosure as a separate element of your disclosure. It’s not sufficient to simply say there’s no relationship.

– If you’re using a non-GAAP company selected measure, be sure to disclose how that measure is calculated from the GAAP financials.

– In the table itself, make sure you’re using the exact headings that the rule dictates. If you’re providing supplemental disclosures, take a look at the adopting release for how to approach that.

If you do receive a comment, here’s “what not to do”: don’t try to argue that your disclosures conform to longstanding common practices. Given that this disclosure requirement is only one year old, Corp Fin will not find that persuasive.

– Liz Dunshee