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Vedder Thinking | Articles SEC Adopts Final Rules Implementing Pay Versus Performance Disclosure Requirements

New disclosure will be required for the 2023 proxy season


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The Securities and Exchange Commission (“SEC”) recently adopted final rules requiring public companies to disclose how executive compensation actually paid relates to the company’s financial performance. These new disclosures will need to be provided in all proxy and information statements in which executive compensation disclosures are required and will be in effect for the 2023 proxy season.


Section 14(i) of the Securities Exchange Act of 1934, which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, directed the SEC to adopt rules requiring reporting companies to disclose the relationship between executive compensation paid and the company’s financial performance. The SEC first proposed the pay versus performance rules in April 2015, and in January 2022 reopened the comment period for the 2015 proposed rules to solicit additional public comment and to address certain additional requirements the SEC had been considering.

Companies Subject to the New Rules

The rules will apply to all reporting companies except foreign private issuers, registered investment companies and Emerging Growth Companies. Smaller Reporting Companies (“SRCs”) will be permitted to provide scaled disclosures.

New Disclosures Required

Pay Versus Performance Table

Under new Item 402(v) of Regulation S-K, companies must provide a table disclosing specified executive compensation and financial performance measures for the company’s five most recently completed fiscal years (the “PvP Table”), subject to transition rules and certain exemptions for SRCs. A copy of the form of the PvP Table is attached to this Bulletin.

In general, companies will be required to include in the table the following compensation and performance-related information for each covered fiscal year:

1. The total compensation as reported in the Summary Compensation Table (“SCT”) for the principal executive officer (“PEO”) and, as an average, for the other named executive officers (“NEOs”);

  • Where more than one person served as PEO during any covered fiscal year, companies will need to add a separate column showing the SCT-reported compensation for each person who served as PEO during that year.
  • For any fiscal year, the average of the other NEO compensation would be that of the NEOs previously reported for that fiscal year. In a footnote to the table, companies must identify the individuals comprising the NEOs for each fiscal year presented.

2. The total executive compensation “actually paid” for the PEO and, as an average, for the other NEOs;

  • Executive compensation “actually paid” is an executive’s total compensation as disclosed in the SCT for the applicable year, adjusted as follows:
    • subtract any aggregate change in the actuarial present value of the officer’s accumulated pension plan benefits, as reported in the SCT;
    • add the aggregate actuarially determined service costs plus any prior service costs under applicable pension plans; and
    • for stock and option awards:
      • subtract the grant-date fair values of stock and option awards made during the year as disclosed in the SCT;
      • add the fair value of those awards as of the last day of the year (or for any portion of the awards that vested during the year, the fair value on the vesting date);
      • add (if positive) or subtract (if negative), the change in fair value of stock and option awards outstanding at the end of the prior year through the last day of the year (or, a vesting date during the year);
      • subtract the prior year-end fair value of any awards outstanding as of the prior year end that were forfeited or canceled for not meeting vesting conditions during the year; and
      • add the dollar amount of any dividends or other distributions paid during the year, unless such amounts are reflected in the fair value of the award or included elsewhere in the SCT for that year.
      Companies should note that determining year-end fair value of performance-based awards and options may require Monte Carlo simulations or other calculations not typically done as part of the year-end financial reporting process.
  • The amounts added and deducted in calculating compensation “actually paid” must be disclosed in a footnote to the PvP Table.

  • Where more than one person served as PEO during any covered fiscal year, a separate column showing the “actually paid” compensation for each person who served as PEO during that year will be required.

3. The cumulative total shareholder return (“TSR”) for the company;

  • TSR is to be calculated for each fiscal year presented and in the same manner as it is calculated for the stock price performance graph required by Item 5(a) of Form 10-K. The amount shown in the table for each fiscal year would be the cumulative TSR as of the end of that year based on an initial fixed investment of $100 at the beginning of the first fiscal year presented (i.e., the TSR for the first fiscal year presented will represent the TSR for that year, the TSR for the second fiscal year will represent the cumulative TSR over the first and second years, and so on).

4. The cumulative TSR for the company’s peer group;

  • Peer-group TSR is to be calculated for each fiscal year presented and is to be weighted based on the peer group companies’ respective stock market capitalization at the beginning of each period. Companies may use the same index or group of companies used for purposes of the stock performance graph or may use the peer group used and disclosed in the CD&A. The same methodology in calculating the issuer’s cumulative TSR must be used for determining the cumulative TSR of the issuer’s peer group.
  • If the peer group for a fiscal year changed from the peer group used for the prior fiscal year, that change must be explained in a footnote to the table and a comparison of the company’s TSR for that year against both the prior peer group and the new peer group must be included.
  • Disclosure of peer-group TSR will not be required for SRCs.

5. The annual net income of the company; and

6. An amount for each year attributable to the “Company-Selected Measure.”

  • The Company-Selected Measure is a financial performance measure chosen by the company and specific to the company that, in the company’s assessment, represents the most important financial performance measure that the company uses to link compensation actually paid to its NEOs to company performance for the most recently completed fiscal year.
  • The financial performance measure chosen as the Company-Selected Measure may be a GAAP or non-GAAP financial measure, a stock price measure or TSR.
  • For non-GAAP Company-Selected Measures, compliance with the reconciliation and other requirements of Regulation G or Section 10(e) of Regulation S-K will not be required; however, issuers must still disclose how the non-GAAP Company Selected Measure was derived from the issuer’s financial statements.
  • No separate Company-Selected Measure disclosure will be required in the PvP Table if TSR, peer-group TSR or net income is chosen as the most important financial performance measure.
  • Disclosure of Company-Selected Measures will not be required for SRCs.

In addition to the tabular presentation in the PvP Table, new Item 402(v) also will require a company to provide (narratively, graphically or a combination of the two):

  • a clear description of the relationship between (A) the “actually paid” compensation of its PEO and, on average, of its other NEOs and (B) each of TSR, net income and the Company-Selected Measure across the company’s last five completed fiscal years; and
  • a comparison of the company’s TSR and its peer group TSR across the company’s last five completed fiscal years.

Tabular List of Financial Performance Measures.

In addition to the PvP Table, companies (other than SRCs) will need to provide a tabular list of three to seven financial performance measures that a company considers are its “most important” measures used to link executive compensation “actually paid” to company performance for the most recently completed fiscal year (the “Tabular List”). The approach to selecting the measures for the Tabular List will be the same approach as taken for the Company-Selected Measure, and a company’s Company-Selected Measure must be one that has been included in the Tabular List.

  • There is no requirement for a company to come up with the minimum three “most important” financial performance measures if the company used fewer than three financial performance measures in total. In such cases, the Tabular List would include all financial performance measures actually used, if any.
  • Companies may include non-financial measures in the Tabular List if they considered such measures to be among their most important measures, provided that it has disclosed the three (or fewer if the company has less than three) most important financial measures.
  • To the extent the measures differ among NEOs, companies may provide separate tabular lists for the PEO and all other NEOs as a group or separate lists for the PEO and each NEO, so long as there are a minimum of three (or fewer if less than three were used) and a maximum of seven measures associated with each separately listed executive.
  • SRCs are exempted from having to provide the Tabular List.

XBRL Requirements

Companies will be required to use Inline XBRL to tag their pay versus performance disclosure (e.g. the information contained in the PvP Table and related footnotes), except that an SRC will be required to provide the required Inline XBRL data beginning with the third filing in which it provides pay versus performance disclosure, instead of the first.

Disclosure Placement

Companies have the flexibility to determine where within their proxy or information statements the new pay versus performance disclosures should reside. Specifically, there is no requirement or recommendation that this disclosure be contained in the CD&A, as companies and compensation committees may not consider all or some of the information required to be included in the required pay versus performance disclosures when making decisions about executive compensation.

No Automatic Incorporation by Reference

Similar to the Compensation Committee Report contained in a proxy statement, the pay versus performance disclosures required by Item 402(v) will not be deemed incorporated by reference into any of the company’s filings under the Exchange Act or Securities Act.

Implementation and Timing

The rules will become effective October 11, 2022. Companies must begin to comply with these disclosure requirements in proxy and information statements that are required to include Item 402 executive compensation disclosure for fiscal years ending on or after December 16, 2022.

Under a transitional rule, registrants, other than SRCs, will be required to provide the information for three years in the first proxy or information statement in which they provide the disclosure, adding another year of disclosure in each of the two subsequent annual proxy filings that require this disclosure. SRCs will initially be required to provide the information for two years, adding an additional year of disclosure in the subsequent annual proxy or information statement that requires this disclosure.

Key Takeaways and Considerations

  • Companies should begin planning well in advance of the traditional start to the proxy season in order to put in place the controls necessary to accurately prepare the required disclosures. In particular, the need to determine the value of equity compensation “actually paid” based on fair values as of the end of each covered fiscal year differs significantly from the values disclosed in the SCT, which generally requires disclosure of the grant-date fair value. The increased disclosures as well as the need to, for the first time, XBRL information contained in the proxy statement may necessitate updating and accelerating internal proxy season timelines and responsibilities and involving company staff members who may not typically be involved with proxy statement preparation.
  • Companies should begin by going through the exercise of gathering and preparing the data needed for 2020 and 2021, including preparing a mock-up of the PvP Table. In doing so, companies will be able to develop the process and line up the internal resources needed to provide the required calculations and valuations (including, where necessary, the pension actuary). Beginning this process early will help identify, if not already known, any potential misalignments or ambiguity between compensation actually paid and the disclosed performance measures, which may require the preparation of more detailed narrative explanations to help investors understand the relationships between paid compensation and performance.
  • As part of this process, companies also should begin to give thought to the list of three to seven performance metrics driving 2022 pay and to selecting the financial performance measure to be included in the PvP Table as the Company-Selected Measure.
  • Additionally, companies should begin to review the company’s TSR and compare it to applicable indices and/or other peer groups for the purposes of selecting a peer group for the TSR comparisons in the PvP Table.
  • Finally, companies should be reviewing prior pay versus performance disclosures, if any, included in their prior annual meeting proxy statements to gain an understanding on how the disclosures required under the new rules may interact or overlap with these prior disclosures. Providing pay versus performance disclosures beyond what is required by the rules is permissible, so long as doing so would not be misleading and would not obscure the required pay versus performance information.

For additional information, please contact Christopher G. Barrett at, John T. Blatchford at, Jennifer King at, Thomas P. Desmond at or any Capital Markets Group or other Vedder Price attorney with whom you have worked.



Summary Compensation Table Total

for PEO

Compensation Actually Paid

to PEO

Average Summary Compensation Table Total for Non-PEO


Average Compensation Actually Paid to Non-PEO


Value of Initial Fixed $100

Investment Based On:

Net Income

[Company- Selected


Total Shareholder


Peer Group Total Shareholder
















Asterisks (*) indicate portions of the PvP Table from which SRCs are exempt. Reporting companies, other than SRCs, must provide the information for three years in the first proxy or information statement in which the disclosure is required, adding another year of disclosure in each of the two subsequent annual proxy or information statement filings that require this disclosure.


Christopher G. Barrett


John T. Blatchford


Jennifer Durham King


Thomas P. Desmond