September 26, 2024
PvP: Reminders for the Third Year
This Compensia Thoughtful Pay alert analyzes PvP disclosures by life sciences and technology sector companies during the 2024 proxy season. In sharing the data from its survey, Compensia provides some compliance reminders for the third year of PvP disclosures, which I’ve tried to distill for you below — since it’s (already) about time to start thinking this through for the 2025 proxy season!
– Companies are not permitted to use a broad equity market index for purposes of disclosing the cumulative TSR of their peer group in the table. Compensia continued to observe a number of companies (8.8%) using what appears to be a broad equity market index, rather than the narrower published industry or line-of-business index (or, alternatively, a compensation peer group) required by the rule. (The alert says a few SRCs also disclosed peer group TSR even though it’s not required — although there may be other reasons to do so.)
– Five years of PvP data will now be required for non-SRCs (2020 onward). Compensia noticed a handful of companies included only three years of disclosures, having dropped 2020 information from their second-year table.
– For the relationship description, graphics might be best. Compensia found a vast majority of the technology and life sciences companies used a single graphic to provide the required relationship disclosures. This is consistent with informal statements by SEC Staff in late 2023 that graphical relationship depictions were generally more effective than narrative ones.
– Provide explanations where it looks like your disclosure isn’t fully compliant. Compensia didn’t observe many companies providing explanations when their disclosures didn’t include certain elements due to their SRC status or lack of financial performance metrics, even though many companies were advised to do so. Compensia continues to believe that these statements are helpful to investors and regulators.
– The SEC Staff has clarified that, following a company’s first PvP disclosures, footnote disclosures of the amounts deducted and added to calculate CAP for years other than the most recently completed fiscal year are required only if material to an understanding of the most recently completed fiscal year. In Compensia’s survey, 79% continued to provide a reconciliation for all four years, and only 20.8% opted to streamline the disclosures and only provide one year.
I’m looking forward to hearing Mark Borges, one of the authors of the alert, discuss improvements for third-year PvP disclosures during our “SEC All-Stars: Executive Pay Nuggets” panel at the “2024 Proxy Disclosure & 21st Annual Executive Compensation Conferences” on October 14-15 in San Francisco and virtually. If you haven’t signed up to hear all the “nuggets” our expert speakers will share over two days, you can check out our action-packed agenda and register now by visiting our online store or by calling us at 800-737-1271.
– Meredith Ervine