The Advisors' Blog

We knew from Corp Fin Staff statements earlier this year that the disclosure review team might take a more detailed approach to reviewing year two PvP disclosures. So we were all warned that 2024 comments may delve into disclosure details and require you to respond with an analysis. We’re now starting to see that play out with new PvP comment letters recently becoming public. Here are some high-level thoughts about the comments and correspondence we’ve seen so far:

– Consistent with recent Staff comments, the comment letters clarify that stating that no relationship exists (even if a particular measure is not used in setting compensation) isn’t compliant with Item 402(v)(5)(ii) — especially where a relationship may exist. The Staff has stated that graphical depictions are useful. That seems particularly true when a registrant is struggling to provide narrative disclosure.

– Some companies included other net income amounts in the PvP table, such as net income attributable to the controlling interest or registrant. Comments point companies to Regulation S-K CDI 128D.08 that says that’s a no-no. Column (h) must include the company’s net income or loss.

– The Staff is comparing PvP table disclosures with the Tabular List and comparing PvP table components with numbers in the audited financial statements.

– The Staff is closely reviewing Compensation Actually Paid (CAP) (in fact, they are going to the Summary Compensation Table and checking calculations) and reconciliation disclosures!

• Multiple comment letters take issue with companies using the phrase “year-over-year” when describing the adjustment for the fair value of equity awards that vested during the year. In one case, the company was calculating CAP correctly and committed to providing more precise/descriptive headings in the reconciliation tables in footnotes to the PvP table in the future.
• In another case, the Staff commented on a company’s failure to present CAP calculations in a footnote. The Staff could nonetheless tell from the Summary Compensation Table that the company was subtracting “All Other Compensation” from the SCT Total to calculate CAP and reminded the company of the specific adjustments required by the rule (relating to defined benefit and actuarial pension plan and stock and option award amounts).

– The Staff is comparing the company’s stock performance graph. They are also reminding registrants of the need to list all the companies comprising the peer group if the company doesn’t use a published industry or line-of-business index.

– The Staff took issue with the placement of supplemental relationship disclosures and insufficient descriptions of non-GAAP measures.

– In one comment, the Staff took the position that companies shouldn’t be taking advantage of Regulation S-K CDI 128D.03 and limiting footnote reconciliation disclosures to the most recent fiscal year if CAP values reported for prior years were revised in the latest proxy statement to correct errors.

Clearly the Staff is indeed taking a detailed look at disclosures and diving into the calculations of CAP to confirm adjustments were made appropriately. In some cases, the calculation issues were actually related to transcription or calculation errors — pulling the wrong numbers from the SCT, failing to provide an average or improperly rounding. While Corp Fin didn’t hold up annual meetings and companies have generally committed to changes in future proxy statements (for a notable example, see this cursory response by Berkshire Hathaway), a clear takeaway here is to have your PvP numbers checked and rechecked by folks who know what values the table should be reporting.

– Meredith Ervine