The Advisors' Blog

In February of 2023, Corp Fin released a number of PvP CDIs, including this Question 128D.11:

Question: Can the Company-Selected Measure included in the Pay Versus Performance table required by Item 402(v)(1) be measured over a multi-year period that includes the applicable fiscal year as the final year, similar to the use of multi-year measurement periods for calculating total shareholder return under Item 402(v)(2)(iv), as long as such performance period is used consistently for all years in the table?

Answer: No. Under Item 402(v)(2)(vi), the Company-Selected Measure is the measure which in the registrant’s assessment represents the most important financial performance measure (that is not otherwise required to be disclosed in the table) used by the registrant to link compensation actually paid to the registrant’s named executive officers, for the most recently completed fiscal year, to company performance. [February 10, 2023]

At the time, this CDI came as a surprise to some and, in those cases, required companies to pivot and change their CSM at the last minute. A PvP comment letter posted on EDGAR last week clarifies Corp Fin’s position on this further. This CDI is not only intended to limit the use of a metric with a multi-year measurement period, but also a metric with a measurement period that spans “across” multiple years, even if it doesn’t exceed one year. In the comment, the Disclosure Review Program staff took issue with a CSM with year-long measurement periods that start and end in September. Here’s a snippet from the company’s response:

[T]he Company originally interpreted Regulation S-K Compliance and Disclosure Interpretation 128D.11 to prohibit the use of a Company-Selected Measure with a measurement period that exceeded one year. In reaching this conclusion, the Company took note of the analogy in the interpretation to Company TSR, which will ultimately be measured over a period of five years. The Company thanks the Staff for clarifying that Regulation S-K Compliance and Disclosure Interpretation 128D.11 prohibits the use of a Company-Selected Measure with a measurement period that spans “across” multiple years, even if the measurement period does not exceed one year. The Company will ensure that, going forward, its disclosed Company-Selected Measure will not span across multiple years.

– Meredith Ervine