The Advisors' Blog

A PvP comment letter and related response made public on EDGAR in December (hat tip to Ali Nardali of K&L Gates for sharing this letter!) appears to provide additional color on Regulation S-K CDI 128D.11. This CDI was one of the more surprising of the 15 PvP CDIs the Staff published in February 2023. It indicated that the Company-Selected Measure could not be measured over a multi-year period that includes the applicable fiscal year as the final year.

The January-February 2025 issue of The Corporate Executive includes the article “Pay Versus Performance Disclosure: Lessons from SEC Comment Letters.” Here’s a blurb about this comment letter from the article.

In a September 2024 comment letter issued to First Horizon Corporation, the Staff […] pointed to this CDI.

“We note your disclosure under your pay versus performance table that the amounts shown for your Company-Selected Measure, A-ROTCE, are shown as averages for the three-year performance period ended with the relevant fiscal year. In future filings, please ensure that the quantified performance information regarding your Company-Selected Measure is not measured over a multi-year period. Refer to Item 402(v)(2)(vi) of Regulation S-K and Regulation S-K Compliance and Disclosure Interpretation 128D.11.

For example, if, in your assessment, A-ROTCE represents the most important financial performance measure used to link compensation actually paid to your named executive officers, for the most recently completed fiscal year, to company performance, please present the A-ROTCE results on a single-year basis for each individual year presented in your pay versus performance table, even if you use the measure as part of a multi-year compensation program.”

In response to the comment, the company agreed to present the Company-Selected Measure as a single-year measure, and not as a multi-year measure, and that single-year presentation would be followed in all tables and charts that disclose or analyze the Company-Selected Measure. However, it went on to note that, in practice, the Company-Selected Measure was actually used by averaging three consecutive annual numbers and that the company intends to continue to provide narrative disclosure explaining how the measure is used and how its actual use differs from the single-year data required to be presented for purposes of Item 402(v)(2)(vi) of Regulation S-K.

The article notes that many companies initially intended to use a measure from their long-term incentive program as the Company-Selected Measure. But then CDI 128D.11 was released, which most companies read to mean that the Company-Selected Measure could not be a multi-year measure, so they opted to use a financial performance measure with a one-year performance period from the annual cash incentive program instead.

This seems to suggest that Regulation S-K CDI 128D.11 was meant to limit the presentation of the Company-Selected Measure to performance against that Measure over the applicable fiscal year — not intended to prohibit the selection of a measure that is used and measured over a multi-year period in the compensation program as the Company-Selected Measure. However, that selection might seem counterintuitive where a one-year measurement period does not sync with how the company measures its metrics for long-term compensation. 

– Meredith Ervine