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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 232, and 240

[Release Nos. 34-95607; File No. S7-07-15]

RIN 3235-AL00

Pay Versus Performance

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission (“Commission”) is adopting

amendments to implement Section 14(i) (“Section 14(i)”) of the Securities Exchange Act of

1934 (“Exchange Act”), as added by Section 953(a) of the Dodd-Frank Wall Street Reform and

Consumer Protection Act (“Dodd-Frank Act”). Section 14(i) directs the Commission to adopt

rules requiring registrants to provide disclosure of pay versus performance. The disclosure is

required in proxy or information statements in which executive compensation disclosure is

required. The disclosure requirements do not apply to emerging growth companies, registered

investment companies, or foreign private issuers.

DATES: Effective date: This final rule is effective on October 11, 2022.

Compliance date: Companies (other than emerging growth companies, registered investment

companies, or foreign private issuers) must begin to comply with these disclosure requirements

in proxy and information statements that are required to include Item 402 of Regulation S-K (as

defined below) disclosure for fiscal years ending on or after December 16, 2022.

FOR FURTHER INFORMATION CONTACT: John Byrne, Special Counsel, Office of

Small Business Policy, at (202) 551-3460, Division of Corporation Finance.

SUPPLEMENTARY INFORMATION: The Commission is adopting an amendment to add

new paragraph (v) to 17 CFR 229.402 (“Item 402 of Regulation S-K”); and amending 17 CFR

232.405 (“Item 405 of Regulation S-T”), 17 CFR 240.14a-101 (“Schedule 14A”), and 17 CFR

240.14c-101 (“Schedule 14C”), each under the Exchange Act.

Table of Contents

INTRODUCTION ............................................................................................................5

Background .....................................................................................................................5

Overview of Final Amendments ...................................................................................10

II.

DISCUSSION OF FINAL AMENDMENTS ................................................................14

New Item 402(v) of Regulation S-K .............................................................................14

1. Application and Operation of Item 402(v) of Regulation S-K ......................................14

i. Proposed Amendments .............................................................................................. 14

ii. Comments .................................................................................................................. 15

iii. Final Amendments ................................................................................................... 16

2. Format and Location of Disclosure ...............................................................................16

i. Proposed Amendments .............................................................................................. 16

ii. Comments .................................................................................................................. 19

iii. Final Amendments ................................................................................................... 24

Executives Covered .......................................................................................................29

1. Proposed Amendments ..................................................................................................29

2. Comments ......................................................................................................................30

3. Final Amendments ........................................................................................................32

Determination of Executive Compensation Actually Paid............................................36

1. Deduction of Change in Actuarial Present Value and Addition of Actuarially

Determined Service Cost and Prior Service Cost ..............................................................38

i. Proposed Amendments .............................................................................................. 38

ii. Comments .................................................................................................................. 39

iii. Final Amendments ................................................................................................... 42

2. Inclusion of Above-Market or Preferential Earnings on Deferred Compensation That

Is Not Tax Qualified ..........................................................................................................48

i. Proposed Amendments .............................................................................................. 48

ii. Comments .................................................................................................................. 48

iii. Final Amendments ................................................................................................... 48

3. Equity Awards ...............................................................................................................49

i. Proposed Amendments .............................................................................................. 49

ii. Comments .................................................................................................................. 51

iii. Final Amendments ................................................................................................... 56

Measures of Performance ..............................................................................................65

1. Requirement to Disclose TSR and Peer Group TSR .....................................................65

i. Proposed Amendments .............................................................................................. 65

ii. Comments .................................................................................................................. 66

iii. Final Amendments ................................................................................................... 72

2. Requirement to Disclose Net Income ............................................................................77

i. Amendments Considered in the Reopening Release ................................................. 77

ii. Comments .................................................................................................................. 77

iii. Final Amendments ................................................................................................... 79

3. Tabular List of the Registrant’s “Most Important” Performance Measures .................81

i. Amendments Considered in the Reopening Release ................................................. 81

ii. Comments .................................................................................................................. 82

iii. Final Amendments ................................................................................................... 85

4. Requirement to Disclose a Company-Selected Measure ..............................................91

i. Amendments Considered in the Reopening Release ................................................. 91

ii. Comments .................................................................................................................. 91

iii. Final Amendments ................................................................................................... 94

Time Period Covered.....................................................................................................99

1. Proposed Amendments ..................................................................................................99

2. Comments ....................................................................................................................100

3. Final Amendments ......................................................................................................101

Permitted Additional Pay-Versus-Performance Disclosure ........................................103

1. Proposed Amendments ................................................................................................103

2. Comments ....................................................................................................................104

3. Final Amendments ......................................................................................................104

Required Disclosure for Smaller Reporting Companies .............................................105

1. Proposed Amendments ................................................................................................105

2. Comments ....................................................................................................................106

3. Final Amendments ......................................................................................................107

III.

OTHER MATTERS .....................................................................................................108

IV.

COMPLIANCE DATES ..............................................................................................108

ECONOMIC ANALYSIS ............................................................................................109

Background .................................................................................................................109

Baseline .......................................................................................................................112

1. Affected Parties ...........................................................................................................112

2. Existing Disclosures and Analyses..............................................................................113

3. Executive Compensation Practices .............................................................................125

Discussion of Economic Effects..................................................................................135

1. Introduction .................................................................................................................136

2. Benefits ........................................................................................................................139

3. Costs ............................................................................................................................156

4. Implementation Alternatives .......................................................................................168

i. Registrants and Filings Subject to the Disclosure Requirement .............................. 168

ii. General Disclosure Requirements ........................................................................... 172

iii. Compensation Measures ........................................................................................ 180

iv. Performance Measures .......................................................................................... 191

VI.

PAPERWORK REDUCTION ACT ............................................................................196

Background .................................................................................................................196

Summary of Comment Letters and Revisions to PRA Estimates ...............................197

Summary of Collection of Information Requirements ................................................198

Incremental and Aggregate Burden and Cost Estimates for the Final Amendments ..204

VII.

FINAL REGULATORY FLEXIBILITY ANALYSIS ................................................207

Need For, and Objectives of, the Final Rules..............................................................208

Significant Issues Raised by Public Comments ..........................................................209

Small Entities Subject to the Final Amendments ........................................................210

Projected Reporting, Recordkeeping, and Other Compliance Requirements .............211

Agency Action to Minimize Effect on Small Entities .................................................212

STATUTORY AUTHORITY AND TEXT OF AMENDMENTS .........................................214

INTRODUCTION

Background

Section 953(a) of the Dodd-Frank Act 1 (“Section 953(a)”) added Section 14(i) 2 to the

Exchange Act. 3 Section 14(i) mandates that the Commission shall, by rule, require each issuer

to disclose in any proxy or consent solicitation material for an annual meeting of the

shareholders of the issuer a clear description of any compensation required to be disclosed by

the issuer under Item 402 of Regulation S-K (or any successor thereto), including, for any issuer

other than an emerging growth company, information that shows the relationship between

executive compensation actually paid and the financial performance of the issuer, taking into

account any change in the value of the shares of stock and dividends of the issuer and any

distributions. Section 14(i) also states that an issuer may include a graphic representation of the

information required to be disclosed.

As a part of the Dodd-Frank Act legislative process, in a 2010 report, the Senate

Committee on Banking, Housing and Urban Affairs stated that the disclosure required under

Section 14(i) “may take many forms.” 4 In addition, the report indicated that the relationship

between executive pay and performance has become a “significant concern of shareholders,”

Pub. L. 111-203, 124 Stat. 1376 (2010).

15 U.S.C. 78n(i).

15 U.S.C. 78a et seq. Subsequent to the addition of Section 14(i) to the Exchange Act, Section 102(a)(2) of the

Jumpstart Our Business Startups Act amended Section 14(i) to exclude registrants that are “emerging growth

companies” from the pay-versus-performance disclosure requirements. Pub. L. 112-106, 126 Stat. 306 (2012).

Report of the Senate Committee on Banking, Housing and Urban Affairs to accompany S. 3217, S. REP. NO.

111-176, at 135 (2010) (“Senate Report”). The report stated with respect to Section 953(a): “This disclosure

about the relationship between executive compensation and the financial performance of the issuer may

include a clear graphic comparison of the amount of executive compensation and the financial performance of

the issuer or return to investors and may take many forms.”

and that the required disclosure should “add to corporate responsibility,” as registrants will be

required to provide clearer executive pay disclosures. 5

In 2015, the Commission proposed a new rule to implement Section 953(a) by creating a

new requirement in Item 402 of Regulation S-K. The proposed new item would require a

registrant to provide a clear description of (1) the relationship between executive compensation

actually paid to the registrant’s named executive officers (“NEOs”) (including the registrant’s

principal executive officer (or persons acting in a similar capacity during the last completed

fiscal year) (“PEO”)) and the cumulative total shareholder return (“TSR”) of the registrant, and

(2) the relationship between the registrant’s TSR and the TSR of a peer group chosen by the

registrant, over each of the registrant’s five most recently completed fiscal years. 6 The comment

period for the Proposing Release was reopened in 2022 to permit commenters to further analyze

and comment upon the proposed rules in light of developments since the publication of the

Proposing Release and our further consideration of the Section 953(a) mandate. 7 In the

Reopening Release, we stated that we were considering, and requested public comment on,

certain additional disclosure requirements that may better implement the Section 953(a)

mandate by providing investors with additional decision-relevant data. 8

Id.

See Pay Versus Performance, Release No. 34-74835 (Apr. 29, 2015) [80 FR 26329 (May 7, 2015)]

(“Proposing Release”).

This reopening of the comment period was set out in Reopening of Comment Period for Pay Versus

Performance Release No. 34-94074 (Jan. 27, 2022) [87 FR 5939 (Feb. 2, 2022)] (“Reopening Release”).

A comment letter from two members of Congress raised concerns about the Reopening Release. See letter

from Sen. Pat Toomey and Sen. Richard Shelby, dated Feb. 1, 2022 (“Toomey/Shelby”). Specifically, the

letter criticized the Commission for reopening the comment period on the Proposing Release and seeking

comment on a number of regulatory alternatives without updating the cost-benefit analysis and analysis

required by the Paperwork Reduction Act and the Regulatory Flexibility Act. The letter asserted that the

approach taken in the Reopening Release significantly impaired the public’s ability to comment thoughtfully

on the proposals and was inconsistent with the Administrative Procedure Act. In response to these concerns,

we note that the Reopening Release included a robust discussion of the additional disclosures under

We believe the disclosure mandated by Section 953(a) is intended to provide investors

with more transparent, readily comparable, and understandable disclosure of a registrant’s

executive compensation, so that they may better assess a registrant’s executive compensation

program when making voting decisions, for example when exercising their rights to cast

advisory votes on executive compensation under Exchange Act Section 14A or electing

directors. 9 This belief is supported by the fact that Section 953(a) was enacted

contemporaneously with other executive compensation-related provisions in the Dodd-Frank

Act that are “designed to address shareholder rights and executive compensation practices.” 10

These included Section 951 of the Dodd-Frank Act, which enacted new Exchange Act Section

14A, 11 and Section 953(b) of the Dodd-Frank Act. These provisions required, respectively, that,

not less than every three years, a separate resolution be put to a non-binding shareholder vote to

approve compensation of executives; 12and that registrants provide disclosure of the ratio of the

consideration and solicited comment on specific aspects of those disclosures. The Reopening Release also

discussed the potential benefits and costs of the additional disclosures, including their impact on efficiency,

competition and capital formation. Finally, the Reopening Release discussed how the additional disclosures

might affect smaller registrants and solicited comment on approaches that would minimize the impact on

smaller registrants, such as exempting smaller reporting companies from certain aspects of the additional

disclosures. Given the discussion included in the Proposing Release and subsequent Reopening Release, we

believe the final rules satisfy the requirements of the Administrative Procedure Act and other applicable

statutes. Moreover, we received numerous comments from members of the public on the additional disclosures

described in the Reopening Release, including comments on the economic effects of the additional disclosure,

and we have considered those comments in adopting the final rules and made certain changes in response.

See generally Proposing Release at Section I.

Dodd-Frank Act, H.R. Rep. 111-157, at 827 (2010).

15 U.S.C. 78n-1.

Pursuant to the mandate in Section 14A of the Exchange Act, we adopted rules requiring a shareholder

advisory vote to approve the compensation of a registrant’s NEOs, as disclosed pursuant to Item 402 of

Regulation S-K, at an annual or other meeting of shareholders at which directors will be elected and for which

such executive compensation disclosure is required under Commission rules. See Shareholder Approval of

Executive Compensation and Golden Parachute Compensation, Release No. 33-9178 (Jan. 25, 2011) [76 FR

6010] (Feb. 2, 2011).

median annual total compensation of employees to the annual total compensation of the chief

executive officer. 13

We believe the disclosure mandated by Section 14(i) will allow investors to assess a

registrant’s executive compensation actually paid relative to its financial performance more

readily and at a lower cost than under the existing executive compensation disclosure regime.

Under Item 402 of Regulation S-K, which specifies the information that must be included when

the applicable form or schedule requires executive compensation disclosure, specific

information regarding financial performance is already required, including in the Performance

Graph in 17 CFR 229.201(e) (“Item 201(e) of Regulation S-K”), the Supplementary Financial

Information in 17 CFR 229.302 (Item 302), and Management’s Discussion and Analysis of

Financial Condition and Results of Operations in 17 CFR 220.303 (Item 303). In addition, Item

402 of Regulation S-K also requires detailed disclosure of executive compensation and

principles-based disclosure requirements regarding the relationship between pay and

performance. 14

There is no single place, however, where issuers must provide investors with direct

comparisons of an executive’s pay with their company’s performance, and specifically financial

performance, particularly if investors are interested in that comparison over a timespan longer

In 2015, we adopted rules to implement Section 953(b) of the Dodd-Frank Act. See Pay Ratio Disclosure,

Release No. 33-9877 (Aug. 5, 2015) [80 FR 50103] (Aug. 18, 2015).

The Compensation Discussion and Analysis (“CD&A”) required by 17 CFR 229.402(b) (“Item 402(b) of

Regulation S-K”) requires registrants to provide an explanation of “all material elements of the registrant’s

compensation of the named executive officers.” 17 CFR 229.402(b)(1). With respect to performance, Item

402(b)(2) of Regulation S-K includes non-exclusive examples of information that may be material, including

(i) specific items of corporate performance taken into account in setting compensation policies and making

compensation decisions; (ii) how specific forms of compensation are structured and implemented to reflect

these items of the registrant’s performance; and (iii) how specific forms of compensation are structured and

implemented to reflect the NEO’s individual performance and/or individual contribution to these items of the

registrant’s performance. 17 CFR 229.402(b)(2)(v) through (vii).

than the most recent reporting period. Existing disclosures generally provide the necessary

components to make these comparisons, including data required for calculations that aid in

these comparisons, but doing so may be time-consuming and costly. We believe this

information is important to investors in evaluating executive compensation, and that disclosures

about executive compensation may be most meaningful to investors when placed in the context

of the company’s financial performance. 15 Indeed, we are aware that certain third parties (e.g.,

proxy advisors or compensation consultants) perform such analyses and charge clients for

access to the resulting data. 16 Requiring registrants to compute and report this information will

make this information equally accessible to all investors in a consistent manner.

By specifically referencing disclosure of “information that shows the relationship

between executive compensation actually paid and … financial performance of the issuer,”

Section 14(i) calls for information that will supplement management’s discussion of material

elements of executive compensation in the CD&A. In addition, we believe this disclosure will

provide investors with important and decision-useful information for comparison purposes in

one place when they evaluate a registrant’s executive compensation practices and policies,

including for purposes of the shareholder advisory vote on executive compensation, votes on

other compensation matters, director elections, or when making investment decisions. 17

See infra Section V.C.2.

See infra Section V.B.2.

For example, academic researchers find that the salience and readability of disclosures about executive

compensation affect say-on-pay votes. See, e.g., Danial Hemmings, Lynn Hodgkinson, & Gwion Williams, It’s

OK to Pay Well, if You Write Well: The Effects of Remuneration Disclosure Readability, 47 J. BUS. FIN. &

ACCOUNTING 547 (2020); and Reggy Hooghiemstra, Yu Flora Kuang, & Bo Qin, Does Obfuscating Excessive

CEO Pay Work? The Influence of Remuneration Report Readability on Say-on-Pay Votes, 47 ACCOUNTING &

BUS. RES. 695 (2017).

Section 14(i) did not expressly prescribe the manner in which issuers would disclose the

required information and we have exercised our discretion to provide for a consistent format

that we believe furthers the statutory objectives of making pay-versus-performance data clear

and easy for investors to evaluate. Standardizing the format and presentation of data, in

particular quantitative metrics, to promote such ease of use requires incremental costs for

issuers. We have elected not to pursue a wholly principles-based approach because, among

other reasons, such a route would limit comparability across issuers and within issuers’ filings

over time, as well as increasing the possibility that some issuers would choose to report only the

most favorable information. In addition, as we describe more extensively below, the final rules

require that issuers calculate the value of certain equity and pension awards in more detail than

would have been required in the proposed rule. These changes, in our view, will result in

disclosures that more accurately represent the time when the awards change in value, which is

important for investors to be able to assess whether such changes correspond to company

performance over the appropriate time period.

We received many comment letters in response to the Proposing Release and the

Reopening Release. After taking into consideration these public comments, we are adopting the

proposed rules, together with certain of the supplemental disclosure requirements considered in

the Reopening Release, with some modifications to reflect public comment. As discussed in

more detail below, the final rules require registrants to present disclosure that reflects the

specific situation of the registrant with respect to pay-versus-performance, and while also

providing pay-versus-performance disclosure that can be readily compared across registrants.

Overview of Final Amendments

The amendments add new 17 CFR 229.402(v) (“Item 402(v) of Regulation S-K”), which

requires registrants to describe the relationship between the executive compensation actually

paid by the registrant and the financial performance of the registrant over the time horizon of

the disclosure. Item 402(v) of Regulation S-K requires disclosure of the cumulative TSR of the

registrant (substantially as defined in Item 201(e) of Regulation S-K), 18 the TSR of the

registrant’s peer group, the registrant’s net income, and a measure chosen by the registrant and

specific to the registrant (“Company-Selected Measure”) as the measures of financial

performance.

The final rules require the following tabular disclosures, with the asterisked items

indicating portions of the final rules from which smaller reporting companies (“SRCs”) 19 are

exempt: 20

Item 201(e) of Regulation S-K sets forth the specific disclosure requirements for the issuer’s stock

performance graph, which is required to be included in the annual report to security holders provided for by 17

CFR 240.14a-3 and 240.14c-3. The Item provides that cumulative TSR is calculated by dividing the sum of the

cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and the

difference between the registrant’s share price at the end and the beginning of the measurement period; by the

share price at the beginning of the measurement period.

A “smaller reporting company” means, in the case of issuers required to file reports under Sections 13(a) or

15(d) of the Exchange Act, an issuer that is not an investment company, an asset-backed issuer, or a majorityowned subsidiary of a parent that is not a smaller reporting company and that: (1) had a public float of less

than $250 million (as of the last business day of the issuer’s most recently completed second fiscal quarter); or

(2) had annual revenues of less than $100 million (as of the most recently completed fiscal year for which

audited financial statements are available) and either: (i) no public float (as of the last business day of the

issuer’s most recently completed second fiscal quarter); or (ii) a public float of less than $700 million (as of the

last business day of the issuer’s most recently completed second fiscal quarter). 17 CFR 240.12b-2; and 17

CFR 229.10. Business development companies (“BDCs”), which are a type of closed-end investment company

that is not registered under the Investment Company Act, do not fall within the SRC definition, and thus do not

qualify for the scaled disclosures that we are adopting for SRCs. See infra Section II.G (discussing our

considerations with respect to SRC disclosure requirements).

The title of column (i) of the table, “Company-Selected Measure,” would be replaced with the name of the

registrant’s most important measure, and that column would include the numerically quantifiable performance

of the issuer under such measure for each covered fiscal year. For example, if the Company-Selected Measure

for the most recent fiscal year was total revenue, the company would title the column “Total Revenue” and

disclose its quantified total revenue performance in each covered fiscal year.

Average

Summary

Value of Initial Fixed $100

Summary

Average

Compensation

Investment Based On:

Compensation

Table Total

Actually Paid

Total

Peer Group Total

Table Total

Actually Paid

for Non-PEO

to Non-PEO

Shareholder

Net

Selected

Year

for PEO

to PEO

NEOs

Return

Return*

Income

Measure]*

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

[Company-

Y4*

Y5*

In addition, registrants are required to use the information in the above table to provide

clear descriptions of the relationships between compensation actually paid and three measures

of financial performance, as follows: describe the relationship between (a) the executive

compensation actually paid to the registrant’s PEO and (b) the average of the executive

compensation actually paid to the registrant’s remaining NEOs to (i) the cumulative TSR of the

registrant, (ii) the net income of the registrant, and (iii) the registrant’s Company-Selected

Measure, in each case over the registrant’s five most recently completed fiscal years.

Registrants are also required to provide a clear description of the relationship between the

registrant’s TSR and the TSR of a peer group chosen by the registrant, also over the registrant’s

five most recently completed fiscal years. Registrants have flexibility as to the format in which

to present the descriptions of these relationships, whether graphical, narrative, or a combination

of the two. Registrants will also have the flexibility to decide whether to group any of these

relationship disclosures together when presenting their clear description disclosure, but any

combined description of multiple relationships must be “clear.” SRCs will only be required to

present such clear descriptions with respect to the measures they are required to include in the

table and for their three, rather than five, most recently completed fiscal years.

A registrant that is not an SRC also will be required to provide an unranked list of the

most important financial performance measures used by the registrant to link executive

compensation actually paid to the registrant’s NEOs during the last fiscal year to company

performance. Although, as discussed below, registrants may include non-financial performance

measures in this list, they must select the Company-Selected Measure from the financial

performance measures included in this list, and it must be the financial performance measure

that in the registrant’s assessment represents the most important 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 NEOs, for the most recently completed fiscal year, to company

performance. 21

As discussed below, the final rules permit registrants to voluntarily provide

supplemental measures of compensation or financial performance (in the table or in other

disclosure), and other supplemental disclosures, so long as any such measure or disclosure is

clearly identified as supplemental, not misleading, and not presented with greater prominence

than the required disclosure. 22

The final rules apply to all reporting companies except foreign private issuers, registered

investment companies, and emerging growth companies (“EGCs”). 23 As proposed, BDCs will

Registrants that do not use any financial performance measures to link executive compensation actually paid to

company performance, or that only use measures already required to be disclosed in the table, would not be

required to disclose a Company-Selected Measure or its relationship to executive compensation actually paid.

See infra Section II.F.3.

“Emerging growth company” means an issuer that had total annual gross revenues of less than $1.07 billion

during its most recently completed fiscal year. An issuer that is an emerging growth company as of the first

day of that fiscal year shall continue to be deemed an emerging growth company until the earliest of: (i) the

be treated in the same manner as issuers other than registered investment companies and,

therefore, be subject to the disclosure requirement of new Item 402(v) of Regulation S-K.

II.

DISCUSSION OF FINAL AMENDMENTS

New Item 402(v) of Regulation S-K

Application and Operation of Item 402(v) of Regulation S-K

Proposed Amendments

We proposed including the pay-versus-performance disclosure in a new Item 402(v) of

Regulation S-K, as Section 14(i) explicitly refers to Item 402 of Regulation S-K as the reference

point for the executive compensation to be addressed by the new disclosure relating

compensation to performance. We proposed requiring registrants to include the Item 402(v) of

Regulation S-K disclosure in any proxy or information statement for which disclosure under

Item 402 of Regulation S-K is required. 24 By including the requirement in Item 402 of

Regulation S-K and requiring this disclosure in proxy statements on Schedule 14A and in

information statements on Schedule 14C, shareholders would have available the

pay-versus-performance disclosure, along with all other executive compensation disclosures

last day of the fiscal year of the issuer during which it had total annual gross revenues of $1.07 billion or more;

(ii) the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of

common equity securities of the issuer pursuant to an effective registration statement under the Securities Act

of 1933 [15 U.S.C. 77a et seq.]; (iii) the date on which such issuer has, during the previous three year period,

issued more than $1 billion in non-convertible debt; or (iv) the date on which such issuer is deemed to be a

large accelerated filer. 17 CFR 240.12b-2. Section 102(a)(2) of the Jumpstart Our Business Startups Act

amended Section 14(i) to exclude registrants that are EGCs from the pay-versus-performance disclosure

requirements. Pub. L. 112-106, 126 Stat. 306 (2012). In accordance with this provision, the Commission did

not propose to require EGCs to provide pay-versus-performance disclosure.

The disclosure called for under Item 402 of Regulation S-K is required under Item 8 of Schedule 14A, and

Item 1 of Schedule 14C. Schedule 14C correlates with the items of Schedule 14A to generally require the

disclosure of information called for by Schedule 14A to the extent that the item would be applicable to any

matter to be acted on at a meeting if proxies were to be solicited. Schedule 14C implements Exchange Act

Section 14(c) [15 U.S.C. 78n(c)] (“Section 14(c)”), which created disclosure obligations for registrants that

choose not to, or otherwise do not, solicit proxies, consents, or other authorizations from some or all of their

security holders entitled to vote.

called for by Item 402 of Regulation S-K, in circumstances in which shareholder action is to be

taken with regard to executive compensation or an election of directors.

Because the language of Section 14(i) calling for the disclosure to be provided in

solicitation material for an annual meeting of the shareholders suggests that the disclosure was

intended to be provided in conjunction with a shareholder vote, we proposed limiting the

requirement to provide these disclosures to a registrant’s proxy or information statement,

instead of in all filings where disclosure under Item 402 of Regulation S-K is required (which

would also include a registrant’s Form 10-K 25 and Securities Act 26 registration statements). In

addition, as proposed, the information would not be deemed to be incorporated by reference into

any filing under the Securities Act or the Exchange Act, except to the extent that the registrant

specifically incorporates it by reference.

ii.

Comments

Some commenters generally supported the proposed approach, 27 with one noting that

including the disclosure in proxy and information statements would provide “relevant

information at a time when (a) it is most useful to shareowners and (b) shareowners are

equipped to act on the information if they are so inclined.” 28 One commenter suggested that the

Commission limit the requirement to include the pay-versus-performance information to proxy

statements only, noting that any other document could just make reference to the proxy

17 CFR 249.310.

15 U.S.C. 77a et seq.

See letters from Federal Home Loan Banks, dated July 2, 2015 (“FHL Banks”); Financial Services Roundtable,

dated July 6, 2015 (“FSR”); and Ohio Public Employees Retirement System, dated July 6, 2015 (“OPERS”).

Comment letters received in response to the Proposing Release and Reopening Release are available at

https://www.sec.gov/comments/s7-07-15/s70715.htm.

Letter from OPERS.

statement; 29 while another commenter suggested the pay-versus-performance information

“should be included in all materials/filings that discuss compensation.” 30

iii.

Final Amendments

As proposed, we are adopting the requirement to include the new Item 402(v) of

Regulation S-K disclosure in any proxy or information statement for which disclosure under

Item 402 of Regulation S-K is required. As noted by commenters 31 and in the Proposing

Release, placing the pay-versus-performance information in proxy statements and information

statements will provide shareholders with the pay-versus-performance disclosure (along with all

other executive compensation disclosures called for by Item 402 of Regulation S-K) in

circumstances in which shareholder action is to be taken with regard to an election of directors

or executive compensation. We are not requiring the pay-versus-performance disclosure in other

filings where disclosure under Item 402 of Regulation S-K is required, as we believe that, taken

in context, the language of Section 14(i) calling for registrants to provide the disclosure “in any

proxy or consent solicitation material for an annual meeting of the shareholders” suggests that

the information was intended to be presented in conjunction with a shareholder vote.

Format and Location of Disclosure

Proposed Amendments

Section 14(i) requires us to adopt rules requiring disclosure of “information” that shows

the relationship between executive compensation actually paid and registrant financial

performance, but it does not specify the format or location of that disclosure. We proposed

allowing registrants to decide where in the proxy or information statement to provide the

See letter from Hermes Investment Management, dated July 7, 2015 (“Hermes”).

Letter from Regis Quirin, dated June 24, 2015 (“Quirin”).

See letters from FHL Banks and OPERS.

required disclosure. Although the new disclosure item would show the historical relationship

between executive pay and registrant financial performance, and may provide a useful point of

comparison for the analysis provided in the CD&A, the Proposing Release indicated that it

would be appropriate to provide flexibility for registrants in determining where in the proxy or

information statement to provide the disclosure.

We proposed requiring registrants to provide a standardized table containing the values

of:

•

The total PEO compensation reported in the Summary Compensation Table;

•

The value of executive compensation actually paid to the PEO;

•

For NEOs (other than the PEO), the average total compensation reported in the

Summary Compensation Table;

•

The value of the average executive compensation actually paid to the NEOs (other than

the PEO);

•

The value of a fixed investment scaled by cumulative TSR, for the registrant; and

•

The value of a fixed investment scaled by cumulative TSR for the selected peer group.

For the amounts disclosed as executive compensation actually paid, we proposed requiring

footnote disclosure of the amounts that were deducted from, and added to, the Summary

Compensation Table total compensation amounts to calculate the executive compensation

actually paid, 32 and footnote disclosure of vesting date valuation assumptions.

Because the statute specifically references disclosure of the relationship between

executive compensation actually paid and registrant’s financial performance, we proposed

See infra Section II.C (discussing the adjustments proposed to be made to the Summary Compensation Table

total compensation to calculate executive compensation actually paid).

requiring registrants, using the values presented in the table, to describe (1) the relationship

between the executive compensation actually paid and registrant TSR, and (2) the relationship

between registrant TSR and peer group TSR. The disclosure about the relationship would

follow the table and could be described as a narrative, graphically, or a combination of the two.

In the Reopening Release, we requested comment on requiring the tabular disclosure to

include disclosure of income or loss before income tax expense, 33 net income, and a CompanySelected Measure. We also requested comment on requiring registrants to provide a clear

description of the relationship of each of these additional measures to executive compensation

actually paid, but, consistent with the relationship descriptions proposed with respect to TSR

and peer group TSR, allowing the registrant to choose the format used to present the

relationship, such as a graphical or narrative description (or a combination of the two).

We also proposed that the disclosure be provided in interactive data format using

machine-readable eXtensible Business Reporting Language (“XBRL”). Specifically, the

proposal would require registrants to tag separately the values disclosed in the required table,

and to separately block-text tag the required relationship disclosure and the footnote

disclosures. 34 In the Reopening Release, we requested comment on whether we should require

registrants also to tag specific data points (such as quantitative amounts) within the footnote

In the Reopening Release we used the term “pre-tax net income,” but are using the phrase “income or loss

before income tax expense” in this release, to be consistent with the language in 17 CFR Part 210 (“Regulation

S-X”).

Specifically, the proposed approach would require registrants to provide the interactive data as an exhibit to

the definitive proxy or information statement filed with the Commission, in addition to appearing with and in

the same format as the rest of the disclosure provided pursuant to proposed Item 402(v) of Regulation S-K; and

to prepare their interactive data using the list of tags the Commission specifies and submit them with any

supporting files the EDGAR Filer Manual prescribes.

disclosures that would be block-text tagged, and to use Inline XBRL rather than XBRL to tag

their pay-versus-performance disclosure. 35

ii.

Comments

Commenters were divided over whether we should require registrants to include the

pay-versus-performance disclosure in the CD&A, 36 or allow registrants to decide where in the

proxy or information statement to provide the required disclosure, as proposed. 37 Commenters

in favor of allowing registrants to decide where to provide the disclosure argued that including

the disclosure in the CD&A could cause confusion, as registrants do not necessarily consider

the information included in the pay-versus-performance disclosure when making decisions

about executive compensation. Those in favor of locating the disclosure in the CD&A stated

that locating the disclosure alongside other executive compensation disclosure would make the

disclosure easier to locate for investors and provide investors the ability to more easily assess

the pay-versus-performance disclosure.

Subsequent to the proposal, the Commission adopted rules replacing XBRL tagging requirements for registrant

financial statements with Inline XBRL tagging requirements. Inline XBRL embeds the machine-readable tags

in the human-readable document itself, rather than in a separate exhibit. See Inline XBRL Filing of Tagged

Data, Release No. 33-10514 (June 28, 2018) [83 FR 40846 (Aug. 16, 2018)]. In 2020, the Commission

adopted rules requiring BDCs to tag their financial statements and certain prospectus disclosures in Inline

XBRL. See Securities Offering Reform for Closed-End Investment Companies, Release No. IC-33836 (Apr. 8,

2020) [85 FR 33290 (June 1, 2020)]. The following year, the Commission required operating companies,

BDCs, and non-interval registered closed-end funds to tag their filing fee exhibits on certain forms in Inline

XBRL. See Filing Fee Disclosure and Payment Methods Modernization, Release No. 33-10997 (Oct. 13,

2021) [86 FR 70166 (Dec. 9, 2021)].

See letters from California Public Employees Retirement System Investment Office, dated July 6, 2015

(“CalPERS 2015”); CFA Institute, dated July 6, 2015 (“CFA”); Farient Advisors LLC, dated July 6, 2015

(“Farient”); and Teachers Insurance Annuity Association of America, dated July 6, 2015 (“TIAA”).

See letters from Compensation Advisory Partners, dated July 2, 2015 (“CAP”); Celanese Corp., dated June 12,

2015 (“Celanese”); Frederic W. Cook & Co., dated June 24, 2015 (“Cook”); Steven Hall ad Partners, dated

July 6, 2015 (“Hall”); and Pearl, Myers and Partners, dated July 6, 2015 (“Pearl”). See also letter from Axcelis

Technologies, Inc., dated Jan. 31, 2022 (suggesting that pay and performance data for all companies should be

made available on a new Commission website, rather than in individual registrant disclosures).

Commenters were also divided on the proposal to require the disclosure in a tabular

format. Some commenters generally supported the proposed tabular disclosure, 38 while others

opposed the tabular format, suggesting it was overly simplistic and would require significant

supplemental disclosures. 39

We received significant comment on the specific performance measures to be included

in the table, as discussed in Section II.E below. With respect to the other information proposed

to be provided in the tabular format, one commenter suggested dividing the table to separate the

TSR disclosure from the compensation actually paid disclosure. 40 In addition, some commenters

opposed requiring disclosure of the total compensation from the Summary Compensation

Table, 41 with one stating that “including the SCT data would result in redundancy, would add a

second figure which is not representative of compensation actually paid, and could result in

possible confusion to shareholders.” 42 However, other commenters supported the inclusion of

the Summary Compensation Table total compensation figures, 43 with one suggesting that

including the Summary Compensation Table figures would help investors understand the

See letters from AllianceBernstein L.P., dated Mar. 4, 2022 (“AB”); As You Sow, dated July 2, 2015 (“As You

Sow 2015”); CAP; Farient; Hermes; and OPERS.

See letters from Aspen Institute’s Business and Society Program, dated July 6, 2015 (“Aspen”); Celanese;

Center on Executive Compensation, dated July 6, 2015 (“CEC 2015”); Corporate Governance Coalition for

Investor Value, dated July 23, 2015 (“Coalition”); Honeywell International Inc., dated July 2, 2015

(“Honeywell”); International Bancshares Corp., dated June 29, 2015 (“IBC 2015”); McGuireWoods LLP and

Brownstein Hyatt Farber Schreck, LLP, dated Mar. 4, 2022 (“McGuireWoods”); and National Association of

Manufacturers, dated July 6, 2015 (“NAM 2015”).

See letter from AON Hewitt, dated July 6, 2015 (“AON”).

See letters from CEC 2015; Exxon Mobil Corp., dated June 23, 2015 (“Exxon”); Hall; McGuireWoods; Pay

Governance LLC, dated June 30, 2015 (“PG 2015”); Pearl; Technical Compensation Advisors, dated July 6,

2015 (“TCA 2015”); and Technical Compensation Advisors, dated. Mar. 4, 2022 (“TCA 2022”).

Letter from PG 2015.

See letters from American Federation of Labor and Congress of Industrial Organizations, dated June 30, 2015

(“AFL-CIO 2015”); CalPERS 2015; and CAP.

pay-versus-performance disclosure alongside the Summary Compensation Table disclosure

when evaluating a registrant’s annual compensation decisions, 44 and another noting that the

Summary Compensation Table figures “will help to clarify potential differences between

reported compensation and compensation actually paid.” 45

A number of commenters suggested that we require or allow graphical disclosures.

Some commenters suggested requiring graphical disclosure, 46 while one specifically supported

giving registrants the flexibility to choose whether to include graphical disclosure. 47 A few of

these commenters suggested requiring inclusion of the performance graph required in Item

201(e) of Regulation S-K, or a modified version of that graph. 48 In addition, a few commenters

suggested the Commission mandate formatting requirements for graphical disclosure, if

graphical disclosure is permitted. 49 One commenter suggested that we replace the tabular

disclosure requirement with a graphical disclosure requirement depicting TSR and

See letter from AFL-CIO 2015.

Letter from CAP.

See letters from AFL-CIO 2015 (stating that a graph would be especially useful if it disclosed (1) the change

between executive compensation actually paid and the Summary Compensation Table figure and (2) the TSRs

of both the registrant and a peer group over all five disclosure years); CalPERS 2015 (suggesting line graphs

be required in addition to tabular and narrative disclosures); Council of Institutional Investors, dated June 25,

2015 (“CII 2015”) (suggesting the Commission require registrants to disclose, at a minimum, “a graph

providing executive compensation actually paid and change in TSR on parallel axes and plotting compensation

and TSR over the required time period”); Corning Inc., dated June 12, 2015 (“Corning”) (suggesting requiring

the graph included in Item 201(e) of Regulation S-K); OPERS (suggesting requiring a line graph, showing

TSR coupled with a corresponding line showing the executive compensation as a group); and Shareholder

Value Advisors, dated July 6, 2015 (“SVA”) (suggesting requiring the inclusion of a scatterplot).

See letter from Hall.

See letters from Allison Transmission Holdings, Inc., dated July 6, 2015 (“Allison”); and Corning. But see

letters from CAP; Center for Capital Markets Competitiveness, dated June 30, 2015 (“CCMC 2015”); Davis

Polk and Wardwell LLP, dated July 2, 2015 (“Davis Polk 2015”); and McGuireWoods (each opposing the

inclusion of the performance graph).

See letters from Hermes and PG 2015. But see letter from Hall (recommending allowing registrants to choose

their own graphical disclosure).

compensation actually paid, 50 while another commenter stated that a prescribed graphical

format would facilitate comparability. 51

One commenter generally supported the requirement to provide a clear description of the

relationship between the measures disclosed in the table and executive compensation, stating

that a “simple-to-understand approach would be particularly valuable to investors.” 52 Another

commenter, who supported requiring disclosure only of one (or more) Company-Selected

Measure(s), indicated that registrants should be required to provide a clear description of the

relationship between the Company-Selected Measure(s) in the table and executive

compensation. 53

Commenters were divided on the proposed XBRL tagging requirement. Of the

commenters who opposed the requirement, 54 some made alternative suggestions such as only

requiring block-tagging, 55 only requiring tagging of the information in the table, 56 delaying the

implementation of the tagging requirement, 57 or permitting but not requiring tagging. 58 One

commenter stated the Commission should proceed “cautiously” to ensure that the cost of

See letter from Meridian Compensation Partners, dated July 6, 2015 (“Meridian”).

See letter from OPERS.

See letter from Principles for Responsible Investment, dated Mar. 4, 2022 (“PRI”).

See letter from National Association of Manufacturers, dated Mar. 4, 2022 (“NAM 2022”).

See letters from CCMC 2015; CEC 2015; Celanese; Davis Polk 2015; Jon Faulkner, dated May 4, 2015

(“Faulkner”); FedEx Corp., dated July 6, 2015 (“FedEx 2015”); Hyster-Yale Materials Handling Inc., dated

June 10, 2015 (‘Hyster-Yale”); IBC 2015; McGuireWoods; NACCO Industries, Inc., dated June 9, 2015

(“NACCO”); Pearl; Society for Corporate Governance, dated Mar. 10, 2022 (“SCG”); and Society of

Corporate Secretaries and Governance Professionals, dated July 7, 2015 (“SCSGP”).

See letter from Pearl.

See letters from Hyster-Yale and NACCO.

See letters from Mercer, dated July 6, 2015 (“Mercer”) and NACCO.

See letter from CII 2015.

tagging does not outweigh the benefits, 59 while another suggested the Commission should

provide data on how many investors use XBRL disclosures before implementing the

requirement. 60 However, a number of commenters supported the XBRL requirement, 61 with one

suggesting that tagging should be required for the actual metrics registrants use to determine

executive compensation. 62

In response to the Reopening Release request for comment regarding Inline XBRL, a

number of commenters suggested requiring all registrants to use Inline XBRL to tag their pay–

versus-performance disclosure, including the tagging of specific data points within the footnote

disclosures that would be block-text tagged. 63 One commenter directly opposed requiring the

use of the Inline XBRL (as considered in the Reopening Release), 64 while another commenter,

who generally opposed an XBRL tagging requirement, stated that, if XBRL tagging is required,

Inline XBRL tagging should be permitted. 65 One commenter suggested the Commission give

time for registrants to implement any XBRL requirements, due to the “stylized” nature of proxy

statements, and that there may be a learning curve because registrant staff preparing the proxy

See letter from National Investor Relations Institute, dated July 10, 2015 (“NIRI 2015”).

See letter from CCMC 2015.

See letters from AFL-CIO 2015; CalPERS 2015; Public Citizen, dated July 6, 2015 (“Public Citizen 2015”);

and State Board of Administration of Florida, dated July 6, 2015 (“SBA-FL”). See also CII 2015 (agreeing

with the Commission’s rationale for requiring tagging, and not opposing the Commission requiring XBRL

tagging, but suggesting that “permitting, rather than requiring, registrants to tag data when registrant-specific

extensions are necessary may be more appropriate”).

See letter from AFL-CIO 2015.

See letters from Council of Institutional Investors, dated Feb. 24, 2022 (“CII 2022”); Steven Huddart, dated

Mar. 4, 2022 (“Huddart”); International Corporate Governance Network, dated Mar. 4, 2022 (“ICGN”); and

XBRL US, dated Mar. 4, 2022 (“XBRL US”).

See letter from Davis Polk and Wardwell LLP, dated Mar. 4, 2022 (“Davis Polk 2022”) (noting that, while the

use of Inline XBRL “could increase the ability of investors to compare across filers,…the initial compliance

costs, the quality and the extent of use of XBRL data by investors would not justify the cost of creating XBRL

data in company filings,” and therefore specifically recommending not requiring the use of Inline XBRL).

See letter from McGuireWoods.

statement may be different from the staff preparing documents that are subject to current

tagging requirements. 66

iii.

Final Amendments

The final rules provide registrants flexibility in determining where in the proxy or

information statement to provide the disclosure required, as proposed. We believe, as noted in

the Proposing Release and by some commenters, that mandating registrants to include the

disclosure in the CD&A may cause confusion by suggesting that the registrant considered the

pay-versus-performance relationship in its compensation decisions, which may or may not be

the case.

We are adopting the tabular disclosure format, as proposed, with the addition of two new

financial performance measures –net income and the Company-Selected Measure – as

considered in the Reopening Release. Each of these financial performance measures is

discussed in more detail below. 67 We are not persuaded by commenters who characterized the

tabular disclosure requirement as overly simplistic. The simplicity of the tabular disclosure

should allow investors to more easily understand and analyze the relationship between pay and

performance. In addition, registrants can supplement the tabular disclosure, so long as any

additional disclosure is clearly identified as supplemental, not misleading, and not presented

with greater prominence than the required disclosure. We also believe the simplicity of the

tabular disclosure matches the requirement in Section 14(i) that registrants provide a “clear

description” of their pay-versus-performance, and, consistent with Section 14(i), will better

See letter from XBRL US.

See infra Sections II.D.1 (discussing TSR and peer group TSR); II.D.2 (discussing net income); and II.D.4

(discussing the Company-Selected Measure).

allow investors to compare disclosures within companies over time and across companies,

making the disclosure more useful.

We are adopting the requirement to include the Summary Compensation Table total

compensation amounts for the PEO and the average (i.e., mean) of the remaining NEOs, as

proposed. Those amounts will appear in columns (c) and (e) of the Pay Versus Performance

table, respectively. We believe including these figures as proposed will provide useful

information to investors, especially as the “actually paid” figures are directly related to those

figures. Requiring disclosure of the Summary Compensation Table measure of total

compensation together with executive compensation actually paid will provide shareholders

with disclosure of two measures in one single table and, we believe, will facilitate comparisons

of the two measures of a registrant’s executive compensation to the registrant’s performance. 68

For example, to the extent that some shareholders may be interested in considering the

relationship of performance with a measure of pay that excludes changes in the value of equity

awards, they would be able to refer to the Summary Compensation Table measure of total

compensation alongside executive compensation actually paid in the tabular disclosure. As

proposed, the final rules will require registrants to provide footnote disclosure of the amounts

that are deducted from, and added to, the Summary Compensation Table total compensation

amounts reported in columns (c) and (e) to calculate the executive compensation actually paid

amounts reported in columns (d) and (f), respectively. We believe any confusion created by the

inclusion of the Summary Compensation Table totals in the table will be mitigated by this

required footnote disclosure.

For example, placing the Summary Compensation Table and actually paid figures side-by-side may make it

easier for investors to follow the footnote disclosures in which the registrant explains how compensation

actually paid differs from the Summary Compensation Table amounts.

As proposed, registrants must also provide a narrative, graphical, or combined narrative

and graphical description of the relationships between executive compensation actually paid and

the registrant's TSR, and between the registrant’s TSR and peer group TSR. We believe the

disclosure of the relationship between executive compensation actually paid and TSR will

satisfy the language of Section 14(i) that registrants disclose the “relationship” between

executive compensation and registrant performance. Further, as noted in the Proposing Release,

we believe disclosure about the relationship between registrant TSR and peer group TSR may

provide a useful point of comparison to assess the relationship between the registrant’s

executive compensation actually paid and its financial performance compared to the

performance of its peers during the same time period. 69

In light of the addition of two new performance measures to the table, we are also

adopting a requirement that registrants provide a clear description of the relationships between

executive compensation actually paid and net income, and between executive compensation

actually paid and the Company-Selected Measure. These descriptions may also be provided in

narrative, graphical, or combined narrative and graphical format. Since some of these measures

and relationships may be more important to some companies or investors than others, we

believe including disclosure about each of these relationships will provide investors with a more

complete picture of how pay relates to performance.

Peer comparisons are a component companies often use to assess the performance of their executives. See,

e.g., John Bizjak, Swaminathan Kalpathy, Zhichuan Frank Li, & Brian Young, The Choice of Peers for

Relative Performance Evaluation in Executive Compensation, 26 REV. FIN. __ (forthcoming 2022), available

at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2833309 (finding that, in a sample of the largest 750

U.S. companies (by market capitalization), “over 50%” of companies in 2017 used performance awards based

on performance relative to a peer group, “comprising approximately one-third of the value of total

compensation”).

We believe permitting, but not mandating, graphical disclosure is consistent with an

acknowledgement in the Senate Report that there could be many ways to disclose the

relationship between executive compensation and financial performance of the registrant, 70 and

the specific language of Section 14(i), which provides the pay-versus-performance disclosures

“may” include graphic representations. We encourage registrants to present this disclosure in

the format that most clearly provides information to investors about the relationships, based on

the nature of each measure and how it is associated with executive compensation actually paid.

As discussed in the Proposing Release, the required relationship disclosure could include, for

example, a graph providing executive compensation actually paid and change in the financial

performance measure(s) (TSR, net income, or Company-Selected Measure) on parallel axes and

plotting compensation and such measure(s) over the required time period. Alternatively, the

required relationship disclosure could include narrative or tabular disclosure showing the

percentage change over each year of the required time period in both executive compensation

actually paid and the financial performance measure(s) together with a brief discussion of how

those changes are related. The required table, along with the required relationship disclosures,

should provide investors with clear information from which to determine the relationship

between executive compensation actually paid and some basic facets of registrant financial

performance. In addition, although the presentation format used by different registrants to

demonstrate the relationship between executive compensation actually paid and the financial

performance measures included in the table pursuant to Item 402(v) of Regulation S-K may

vary, these more variable descriptions may allow investors to understand more easily the

registrant’s perspective on these required relationship disclosures.

See supra note 4 and accompanying text.

The final rules require registrants to separately tag each value disclosed in the table,

block-text tag the footnote and relationship disclosure, and tag specific data points (such as

quantitative amounts) within the footnote disclosures, all in Inline XBRL. We recognize that, as

noted by commenters, 71 the requirement that registrants use Inline XBRL will increase costs for

registrants. However, we believe these costs will be incremental, as registrants are subject to

Inline XBRL tagging requirements for other Commission disclosures. 72 In addition, we believe

that requiring the data to be structured will lower the cost to investors of collecting this

information, permit data to be analyzed more quickly, and facilitate comparisons among public

companies, all of which justify the incremental cost to registrants. We also believe that the

registrants who will be subject to the pay-versus-performance rule are familiar with Inline

XBRL, 73 and for that reason do not believe additional data about the complexity of Inline

XBRL, or a phase-in period for the application of the requirement (other than as proposed for

SRCs, as discussed below 74), are necessary. With respect to comments questioning the utility of

a structured data language, we note that investors and market participants have gained

experience with XBRL and Inline XBRL filings since the time of the Proposing Release, and

that there is increased evidence that data in these formats is useful to investors. 75

See, e.g., letter from Davis Polk 2022.

See supra note 35 (noting that subsequent to issuing the Proposing Release, the Commission adopted rules

replacing XBRL tagging requirements for registrant financial statements with Inline XBRL tagging

requirements). See also Inline XBRL Filing of Tagged Data, Release No. 33-10514 (June 28, 2018) [83 FR

40846 (Aug. 16, 2018)].

See infra Section V.C.4.ii.

See infra Section II.G.iii.

See infra Section V.C.4.ii.

Executives Covered

Proposed Amendments

Under the approach included in the Proposing Release, registrants other than SRCs

would have been required to provide disclosure about “named executive officers,” as defined in

17 CFR 229.402(a)(3); 76 and SRCs would have been required to provide disclosure about

“named executive officers,” as defined in 17 CFR 229.402(m). 77 These are the executive

officers for whom, under our current rules, compensation disclosure is required under Item 402

of Regulation S-K, including in the Summary Compensation Table and the other executive

compensation disclosure requirements. Specifically, we proposed requiring registrants to

separately disclose compensation information for the PEO, and as an average for the remaining

NEOs. We also proposed that, if more than one person served as the PEO of the registrant in

any year, the disclosure for those multiple PEOs would be aggregated for that year, because this

reflects the total amount that was paid by the registrant for the services of a PEO.

17 CFR 229.402(a)(3) defines the NEOs for whom Item 402 of Regulation S-K executive compensation is

required as (1) all individuals serving as the registrant’s PEO during the last completed fiscal year, regardless

of compensation level, (2) all individuals serving as the registrant’s principal financial officer or acting in a

similar capacity during the last completed fiscal year (“PFO”), regardless of compensation level, (3) the

registrant’s three most highly compensated executive officers other than the PEO and PFO who were serving

as executive officers at the end of the last completed fiscal year, and (4) up to two additional individuals for

whom Item 402 of Regulation S-K disclosure would have been provided but for the fact that the individual was

not serving as an executive officer of the registrant at the end of the last completed fiscal year. Because the

pay-versus-performance disclosure was proposed as new paragraph (v) to Item 402 of Regulation S-K, the

disclosure also would be required for the NEOs.

For SRCs, 17 CFR 229.402(m)(2) defines the NEOs for whom Item 402 of Regulation S-K executive

compensation is required as (1) all individuals serving as the smaller reporting company’s PEO during the last

completed fiscal year, regardless of compensation level, (2) the smaller reporting company’s two most highly

compensated executive officers other than the PEO who were serving as executive officers at the end of the

last completed fiscal year, and (3) up to two additional individuals for whom Item 402 of Regulation S-K

disclosure would have been provided but for the fact that the individual was not serving as an executive officer

of the smaller reporting company at the end of the last completed fiscal year.

Comments

A number of commenters supported requiring Item 402(v) of Regulation S-K to cover

both PEOs and NEOs. 78 These commenters noted that requiring Item 402(v) of Regulation S-K

to cover PEOs and NEOs would be consistent with the disclosure in the Summary

Compensation Table, 79 and what Congress intended; 80 and would provide investors with useful

information about the registrant’s compensation practices more broadly. 81 However, a number

of other commenters suggested we limit the disclosure to PEOs. 82 Such commenters raised

concerns about the inclusion of non-PEO NEOs, including that: NEO groups may vary

considerably from year to year; 83 NEOs are more likely to have business-segment-based

compensation, the performance of which might not be reflective of the registrant’s overall

performance; 84 and not all NEOs are in positions to affect overall company performance. 85

Commenters also stated that PEOs are under the most scrutiny from investors 86 and are the only

See letters from CalPERS 2015; CII 2015; CFA; Hay Group, Inc., dated July 6, 2015 (“Hay”); David Hook,

dated May 3, 2015 (“Hook”); OPERS; National Association of Corporate Directors, dated July 10, 2015

(“NACD 2015”); National Association of Corporate Directors, dated Mar. 10, 2022 (“NACD 2022”); and

TIAA.

See letters from CalPERS 2015; CFA; and Hay.

See letter from CII 2015.

See letter from CII 2015; CFA; OPERS; and TIAA.

See letters from AON; BorgWarner Inc., dated Aug. 20, 2015 (“BorgWarner”); CAP; CEC 2015; CCMC

2015; Celanese; Coalition; Corning; Davis Polk 2015; Exxon; FedEx 2015; FSR; Hall; Hodak Value Investors,

dated July 2, 2015 (“Hodak”); Honeywell; Hyster-Yale; McGuireWoods; Mercer; NACCO; NIRI 2015;

National Investor Relations Institute, dated Mar. 4, 2022 (“NIRI 2022”); Pearl; PNC Financial Services Group,

dated July 6, 2015 (“PNC”); TCA 2015; TCA 2022; and WorldatWork, July 6, 2015 (“WorldatWork”).

See letters from CCMC 2015; CEC 2015; Exxon; FSR; Meridian; Pearl; and PNC.

See letters from Celanese; FSR; and PNC.

See letters from CCMC 2015 and Coalition.

See letters from CCMC 2015; CEC 2015; Corning; Davis Polk 2015; FSR; NIRI 2015; NIRI 2022; Pearl;

PNC; TCA 2015; and WorldatWork.

executives comparable across companies; 87 and that requiring disclosure of non-PEO NEOs

would create an increased reporting burden. 88 In addition, one commenter expressed belief that

Section 14(i) did not require the pay-versus-performance disclosures to include non-PEO

NEOs. 89

Commenters were generally opposed to the proposal’s approach of aggregating multiple

PEOs for years when a registrant had more than one individual serve as PEO. 90 These

commenters proposed a number of alternatives to aggregation, including: allowing separate

disclosure for each PEO; 91 only requiring aggregation for external successors; 92 only disclosing

the compensation of the PEO serving at the end of the year (either annualized 93 or not 94);

requiring disclosure of the outgoing PEO only; 95 only aggregating payments for services

rendered as PEO; 96 requiring aggregated and disaggregated disclosures; 97 or excluding any

disclosures in years where the registrant has multiple PEOs. 98 Additionally, a number of

See letter from TCA 2015.

See letters from Davis Polk 2015 and WorldatWork.

See letter from Coalition.

See letters from AFL-CIO 2015; BorgWarner; Business Roundtable, dated July 6, 2015 (“BRT”); CCMC

2015; Coalition; Celanese; FedEx 2015; FSR; Hall; Honeywell; IBC 2015; McGuireWoods; Mercer; PG 2015;

Pearl; TCA 2015; and TCA 2022.

See letters from AFL-CIO 2015; BorgWarner; CCMC 2015; FedEx 2015; Honeywell; SCSGP; TCA 2015;

and TIAA.

See letters from Cook and Pearl.

See letters from FSR and Mercer.

See letters from Mercer.

See letters from Hodak and PG 2015.

See letters from AON and SCSGP.

See letters from As You Sow 2015 and Hermes.

See letter from McGuireWoods.

commenters opposed including signing and severance bonuses, either generally, 99 or if the

compensation of multiple PEOs were to be aggregated, 100 while some other commenters more

specifically stated that these bonuses were reasons not to aggregate PEO compensation. 101

A few commenters also opposed using the average NEO compensation in the table, 102

while others supported average NEO compensation. 103 A number of other commenters did not

expressly oppose the use of average NEO compensation, but stated that this type of disclosure

would provide little investor insight, 104 could confuse investors, 105 or would limit

comparability. 106 Two commenters suggested requiring separate disclosure for each NEO. 107

Final Amendments

We are adopting requirements for registrants to disclose information pertaining to both

NEOs and PEOs in their Item 402(v) of Regulation S-K disclosure, as proposed. As noted in the

Proposing Release, Section 14(i) does not specify which executives must be included in the

pay-versus-performance disclosure. While we are mindful of concerns raised by commenters

that individual NEOs may be in positions less likely to affect overall company performance than

the PEO, may have more varied performance measures driving their compensation (including

because NEOs within a company have different roles), can vary from year to year, and are less

See letters from FedEx 2015 and SCSGP.

100

See letters from CCMC 2015; Celanese; and Davis Polk 2015.

101

See letters from FSR and Honeywell.

102

See letters from CEC 2015; Coalition; and Meridian.

103

See letters from NACD 2015 and Pearl (generally opposing the disclosure of NEO compensation, but stating

that it should be aggregated if required to be disclosed).

104

See letter from Honeywell.

105

See letter from IBC 2015.

106

See letter from Meridian.

107

See letters from Loring, Wolcott & Coolidge, dated Mar. 4, 2022 (“LWC”) and OPERS.

comparable across registrants (with respect to compensation), we believe that Congress

intended for the rules to provide disclosure about both PEOs and the remaining NEOs because

Section 14(i) specifically refers to “compensation required to be disclosed by the issuer under

[Item 402 of Regulation S-K],” and Item 402 requires disclosure of NEO compensation.

Further, while we agree that investors are typically most interested in the compensation of the

PEO, as indicated by commenters, 108 investors also are interested in how the incentives of

NEOs relate to company performance, and our rationale of simplifying and reducing costs for

investors who monitor executive performance therefore extends to NEOs.

We are also adopting, as proposed, the requirement that registrants provide separate

disclosure of the PEO’s compensation. We believe this is appropriate because, as noted by

commenters, investors frequently have more interest in PEO compensation, PEOs are generally

more comparable across companies, and PEOs are frequently in a position to impact

performance more than any other NEO.

Similarly, we are adopting as proposed a requirement to include an average of

compensation for the remaining NEOs. We disagree with commenters that suggested that

average NEO compensation would provide little investor insight, could confuse investors, or

would limit comparability. Rather, we believe disclosure of the relationship of performance to

average NEO compensation will be more meaningful to shareholders than individual or

aggregate NEO compensation. Because a registrant’s individual NEOs may change from year to

year, we believe that the disclosure of the average NEO compensation will make it easier for

investors to compare the registrant’s pay-versus-performance disclosure over time. Further, we

believe disclosure of compensation for all NEOs (consisting of the PEO, and the remaining

108

See supra note 86 and accompanying text.

NEOs in the aggregate) aligns with our understanding of the intent of Congress that all NEOs be

included in the pay-versus-performance disclosure. In addition, we are adopting a requirement

that registrants identify in footnote disclosure the individual NEOs whose compensation

amounts are included in the average for each year, so that investors can consider whether

changes in the average compensation reported from year to year were due to compositional

changes in the included NEOs. We believe this will alleviate concerns raised by commenters

that the aggregation of NEOs could confuse investors.

Although some commenters opposed our proposal to require an average of NEO

compensation and suggested that we instead require the disclosure of compensation for each of

the NEOs as separate columns in the table, we believe that approach could result in a lengthy

and potentially confusing table, due to the fact that in any year there are multiple NEOs and, as

noted by several commenters, 109 there can be frequent turnover in a registrant’s NEOs from year

to year. In addition, we are not permitting registrants to remove signing bonuses, severance

bonuses, and other one-time payments from the amount of executive compensation actually

paid, because, although those figures may not represent the executive’s compensation in a

‘typical’ year where no such payment is made, they do reflect amounts that are “actually paid”

to the executives. Even if such payments are not ordinarily recurring with respect to a particular

executive, shareholders voting on executive compensation or directors may wish to take into

account the company resources devoted to such payments in light of the company’s

performance.

In a change from the proposal, in response to comments, the final rules do not require

aggregating the compensation of PEOs in years when a registrant had multiple PEOs. Instead,

109

See supra note 83.

the final rules require that, in those years, registrants include separate Summary Compensation

Table total compensation and executive compensation actually paid columns for each PEO. For

example, the below table shows the disclosure that would be required when there were two

PEOs in “Year 2”:

Value of Initial Fixed $100

Average

Summary

Average

Compensation

Summary

Investment Based On:

Summary

Compensation

Table Total

Compensation

Actually Paid

Table Total

Actually Paid

Total

Table Total

for Second

Actually Paid

to Second

for non-PEO

to non-PEO

Shareholder

Net

Selected

Year

for First PEO

PEO

to First PEO

PEO

NEOs

Return

Income

Measure]

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i))

Peer Group

[Company-

N/A

We believe including separate disclosure for each PEO, as recommended by some

commenters, 110 would address commenters’ concerns that aggregating PEO disclosure could

lead to confusing or misleading disclosure. 111 In the case of multiple PEOs in a single year, this

approach would make the table itself slightly longer, but it would have the added benefit of

distinguishing the compensation paid to separate PEOs both visually and in the structured data,

instead of presenting a potentially confusing aggregated figure in the table and only having

discussion of the separate PEOs in footnote and narrative disclosure.

110

See supra note 91.

111

We note that a registrant may elect to provide additional information about its PEO or PEOs, such as the

amount of time during the year each individual served as PEO, if the registrant believes that information would

provide relevant context to investors.

Determination of Executive Compensation Actually Paid

We proposed that “executive compensation actually paid” under Item 402(v) of

Regulation S-K would be total compensation as reported in the Summary Compensation Table,

modified to adjust the amounts included for pension benefits and equity awards. In both the

Proposing and Reopening Releases, we requested comment on the proposed approaches to

calculating these amounts, and whether the proposed definition appropriately captures the

concept of “executive compensation actually paid,” and in the Proposing Release we offered an

economic analysis of an alternative approach to calculating equity awards. We received

significant comment, as discussed below, on the proposed approaches to calculating the

amounts of pension benefits and equity awards to be included as “actually paid.” In addition,

several commenters to the Proposing Release noted that the definition of compensation actually

paid as proposed may result in some misalignment between the time period to which pay is

attributed and the time period in which the associated performance is reported. 112 After

considering the statutory language and the comments received, we are adopting final rules for

calculating the amounts reported for pension benefits and equity awards that are modifications

of our proposed approach, including, as discussed further below, requiring equity awards to be

revalued more frequently than as proposed. We believe that these approaches will more

accurately reflect executive compensation actually paid, as required by Section 14(i), and

mitigate commenter concerns about timing mismatches by more closely associating

compensation with the period of the corresponding performance.

112

See, e.g., letters from Allison; Celanese; CEC 2015; Cook; Coalition; Farient; Faulkner; FSR; Honeywell;

NACCO; NACD 2015; NAM 2015; Pearl; Ross Stores, Inc. dated June 26, 2015 (“Ross”); SVA; SBA-FL;

TIAA; TCA 2015; and WorldatWork.

Although Section 14(i) refers to compensation required to be disclosed under Item 402

of Regulation S-K, it also uses the phrase “actually paid,” which differs from disclosure

required under Item 402 of “compensation awarded to, earned by or paid to” the NEOs. Because

Congress was aware of the language of Item 402 at the time of the Dodd-Frank Act, and

adopted text that did not mirror the language of that provision, we believe that Congress

intended executive compensation “actually paid” to be an amount distinct from the total

compensation as reported under Item 402 because it used a term not otherwise referenced in

Item 402. As such, we believe using as a starting point the total compensation that registrants

already are required to report in the Summary Compensation Table and making adjustments to

some of those figures is appropriate to give effect to the statutory language and reflect executive

compensation that is “actually paid.” 113 Commenters generally agreed that adjustments to the

Summary Compensation Table total were appropriate to determine “executive compensation

actually paid,” 114 noting that there are some items reportable in the Summary Compensation

Table total that are not reflective of compensation “actually paid”; 115 or more generally

113

A few commenters on the proposed rules sought clarity on the disclosure required in circumstances where a

registrant recovers (or “claws back”) any portion of an executive officer’s compensation. See letters from

Hyster-Yale; IBC 2015; and NACCO. See also letters from BRT and NACD 2015 (noting that the proposed

rules did not account for claw-backs). Consistent with the approach currently taken by registrants when

reporting claw-backs in the Summary Compensation Table, when any portion of an executive officer’s

compensation for a fiscal year that is included in the table is clawed back, the amounts of executive

compensation disclosed in response to Item 402(v) as the Summary Compensation Table Total and as the

Compensation Actually Paid initially reported for such year should be adjusted to reflect the effects of the

claw-back, with footnote disclosure of the amount(s) recovered, when applicable.

114

See, e.g., letters from AON; CAP; CEC 2015; Exxon; FedEx 2015; FSR; Hall; Honeywell; Hyster-Yale;

KPMG LLP, dated July 1, 2015 (“KPMG”); Meridian; NACCO; NACD 2015; PG 2015; Public Citizen 2015;

SCSGP; SVA; TCA 2015; TCA 2022; TIAA; Towers Watson, dated July 6, 2015 (“Towers”); and

WorldatWork. But see letter from IBC 2015 (stating that “the Summary Compensation Table already required

by Regulation S-K is sufficient”).

115

See letters from AON; CAP; CEC 2015; FedEx 2015; Hall; Honeywell; KPMG; Meridian; NACD 2015;

Public Citizen 2015; SCSGP; SVA; TIAA; Towers; and WorldatWork.

suggesting that the Summary Compensation Table total is not reflective of “executive

compensation actually paid.” 116

Deduction of Change in Actuarial Present Value and Addition of

Actuarially Determined Service Cost and Prior Service Cost

Proposed Amendments

We proposed requiring registrants to deduct the change in actuarial present value of all

defined benefit and actuarial pension plans 117 from the Summary Compensation Table total

compensation figure, and to add back the actuarially determined service cost for services

rendered by the executive during the applicable year, 118 when calculating executive

compensation actually paid. We proposed removing the change in actuarial present value of

these plans in order to avoid potential volatility associated with revaluing previously

accumulated benefits with changes in actuarial inputs and assumptions. However, as discussed

in the Proposing Release, we believed that including the service cost from the applicable year

was appropriate because it more closely reflected compensation “actually paid” during that year,

in that it could be seen as an estimate of the value that would be set aside by the registrant to

fund the benefits payable in retirement for the service provided during the applicable year. We

also stated that we believed that using the actuarially determined service cost, instead of the

116

See letters from CEC 2015; Exxon; FSR (stating that “Congress did not intend that compensation [actually

paid] would be determined by reference to the Summary Compensation Table”); Hall; Hyster-Yale (suggesting

an approach where companies are permitted to define “actually paid” independently, and then reconcile those

amounts with the Summary Compensation Table totals); NACCO (same); PG 2015; SVA; TCA 2015; and

TCA 2022.

117

The change in actuarial present value, generally, reflects the difference between the actuarial present value of

accumulated benefits at the end of the fiscal year and at the end of the prior fiscal year.

118

Service cost is defined in FASB ASC Topic 715 as the actuarial present value of benefits attributed by the

pension plan’s benefit formula to services rendered by the employee during the period. The measurement of

service cost reflects certain assumptions, including future compensation levels to the extent provided by the

pension plan’s benefit formula.

Summary Compensation Table pension measure, may increase comparability across registrants

of the amounts “actually paid” under both defined benefit and defined contribution plans. For

defined contribution plans, the Summary Compensation Table requires disclosure of registrant

contributions or other allocations to vested and unvested defined contribution plans for the

applicable fiscal year, 119 which will also be included in computing compensation actually paid

for purposes of the new disclosure.

In the Reopening Release, we stated that some commenters had noticed challenges with

using the pension service cost approach to determining the value of pension benefits “actually

paid,” and requested comment on whether there is an alternative measure of the change in

pension value attributable to the applicable fiscal year that is better representative of the amount

of pension benefits “actually paid.”

ii.

Comments

Some commenters generally supported limiting the pension benefits included in

executive compensation actually paid to service cost. 120 In addition, some commenters

supported the proposed deduction of the change in actuarial present value of defined benefit and

pension plans not attributable to the applicable year of service, 121 or generally supported the

Commission’s choice to exclude the value associated with actuarial assumptions. 122

119

17 CFR 229.402(c)(2)(ix)(E).

120

See letters from Chris Barnard, dated June 24, 2015 (“Barnard 2015”); Chris Barnard, dated Mar. 2, 2022

(“Barnard 2022”); CAP; Hall; Exxon; and WorldatWork.

121

See letters from CAP; CEC 2015; Exxon; TIAA; and Towers.

122

See letter from NACD 2015.

There were also a number of commenters who opposed the inclusion of pension service

cost in executive compensation actually paid, 123 noting it may remain subject to vesting

conditions and may not ever actually be paid; 124 has assumptions built in that would prevent

comparability across registrants or distort the figure; 125 is not presently calculated on a per

participant basis, so would add cost; 126 or generally that it does not equal compensation

“actually paid.” 127 However, a number of commenters who opposed the inclusion of service

cost noted their view that it would be a better representation of compensation “actually paid”

than the current Summary Compensation Table figure. 128 A few commenters suggested

excluding changes in pension values entirely, 129 while some others suggested that the registrant

should have the option to exclude service cost, if the executive is not vested in the pension

benefits. 130

A number of commenters suggested other ways to include pension amounts in executive

compensation actually paid. Some commenters recommended an approach requiring registrants

to calculate the change in pension value to equal the actuarial present value of the benefit earned

during the year, 131 noting that it tracks the actual pattern of benefit increases resulting from pay

123

See letters from AON; CCMC 2015; CEC 2015; Honeywell; IBC 2015; and NACCO.

124

See letters from Honeywell and Towers

125

See letters CCMC 2015; IBC 2015; and Towers.

126

See letters NACCO.

127

See letters CEC 2015.

128

See letters from AON; Honeywell; Pearl; and Towers.

129

See letters from Coalition; Honeywell; and Pearl (advocating a realized pay approach that would exclude all

pension associated values).

130

See letters from AON (generally supporting the exclusion of all non-vested pension benefits); Hyster-Yale; and

NACCO.

131

See letters from Mercer and Towers; see also letter from AON (suggesting the same, if pensions must be

included in compensation actually paid). Other commenters recommended approaches similar to this approach.

See letters from Barnard 2022 (recommending that we include the change in the actuarial present value of

increases and plan amendments, 132 and links directly to the existing approach and assumptions

used for the Summary Compensation Table. 133 Another suggested multiplying the value of the

pension increase during the year, net of any inflationary increase and contribution by the

employee, by twenty. 134

Some commenters requested clarification regarding the calculation of the service cost

amount. Two commenters suggested alternatives to the application of FASB ASC Topic 715, 135

with one suggesting that the Commission instead clarify that the intended measurement is the

change in pension values attributable to an additional year of service, 136 and the other

suggesting the Commission use the accumulated benefit obligation service cost or the change in

present value of accrued benefits, using the same assumptions at the beginning and end of each

year. 137 Two commenters suggested the Commission eliminate the reference to the required use

of future salary increases to estimate service cost, because it would require significant new data

and reveal new information to investors, 138 with one also suggesting the Commission clarify

pension benefits over the applicable fiscal year using the same economic assumptions as used in the

calculation at the start of the applicable fiscal year); Exxon (recommending that we include the portion of the

currently-reported change in pension values that is attributable to an additional year of service); and

WorldatWork (same).

132

See letter from Mercer.

133

See letters from Mercer and Towers; see also letter from AON (suggesting the same, if pensions must be

included in compensation actually paid).

134

See letter from Hermes (specifically suggesting the Commission follow the United Kingdom’s method of

multiplying the value of the increase in annual pension benefit, net of any inflationary increase and

contribution by the employee, by twenty).

135

See letters from AON and Exxon.

136

See letter from Exxon.

137

See letter from AON (alternatively suggesting a third alternative of disclosing the present value, using year end

assumptions, of the increase in accrued benefit during the year).

138

See letters from Towers and WorldatWork.

that the intended measurement is the change in pension values attributable to an additional year

of service. 139

Three commenters responded to our request for comment in the Reopening Release

asking if there is an alternative measure of the change in pension value attributable to the

applicable fiscal year that is better representative of the amount of pension benefits “actually

paid.” One suggested that the “value of dollars set aside to provide a pension benefit to an

executive” be disclosed. 140 Another suggested that registrants should be required to disclose the

“change in (increase) the actuarial present value of pension benefits over the applicable fiscal

year using the same economic assumptions as used in the calculation at the start of the

applicable fiscal year.” 141 The third stated that pension benefits should be fully excluded from

the “actually paid” amount, but also stated that service cost was “far more representative of the

compensation received” than the change in actual present value amount included in the

Summary Compensation Table total. 142

iii.

Final Amendments

With respect to pension compensation, we are adopting final rules largely as proposed

with a modification in response to commenters’ suggestion to also include the value of plan

amendments in the calculation of compensation actually paid. The final rules will require

registrants to deduct from the Summary Compensation Table total the aggregate change in the

actuarial present value of all defined benefit and actuarial pension plans, 143 and add back the

139

See letter from WorldatWork.

140

Letter from ICGN.

141

Letter from Barnard 2022.

142

Letter from Aon Human Capital Solutions, dated Mar. 4, 2022 (“Aon HCS”).

143

As discussed below, smaller reporting companies would not need to deduct this amount or add the service cost

because the Summary Compensation Table requirements for smaller reporting companies do not require

disclosure of the change in actuarial present value. See infra Section II.G.3.

aggregate of two components: (1) actuarially determined service cost for services rendered by

the executive during the applicable year, as proposed (the “service cost”); and (2) the entire cost

of benefits granted in a plan amendment (or initiation) during the covered fiscal year that are

attributed by the benefit formula to services rendered in periods prior to the plan amendment or

initiation (the “prior service cost”), in each case, calculated in accordance with U.S. Generally

Accepted Accounting Principles (“U.S. GAAP”). 144

As noted above, the change in actuarial present value, generally, reflects the difference

between the actuarial present value of accumulated benefits at the end of the fiscal year and at

the end of the prior fiscal year. The change in actuarial present value would be deducted only if

the value is positive, and therefore included in the sum reported in column (h) of the Summary

Compensation Table. Where such amount is negative (and therefore not reflected in the

Summary Compensation Table and reported only in a footnote to column (h)), no amounts

should be deducted for purposes of Item 402(v) of Regulation S-K.

The below table shows the changes from the proposed rules to the final rules with

respect to pension compensation (specific changes are bolded and italicized):

Proposed Rules

Final Rules

Deduct (from

The aggregate change in the actuarial

Summary

present value of all defined benefit and

Compensation

actuarial pension plans.

Service cost.

The aggregate of:

Table total):

Add back:

(1) Service cost; and

(2) Prior service cost.

144

See FASB ASC Topic 715.

We believe that it is appropriate to include pension compensation in the calculation of

compensation “actually paid.” The adopted approach in particular provides an appropriate

measure for purposes of determining compensation “actually paid” during the applicable year

because it reflects the benefits an executive may expect to receive based on additional service

the executive provided during the year (or service cost), and it incorporates additional benefits

attributable to changes in the pension contract between the executive and the company (or prior

service cost). In many cases, this measure will approximate the value that would be set aside

currently by the registrant to fund the pension benefits payable upon retirement for the service

provided, and any plan amendments made, during the applicable year. In addition, the inclusion

of pension compensation is consistent with other compensation disclosure requirements, such as

Item 402(c) of Regulation S-K. These same rationales apply whether or not the pension

amounts are vested. Consistent with the equity compensation adjustment, the pension

adjustment will be included even when unvested until an officer leaves the company.

Another advantage to the approach we are adopting is that it is more closely associated

with underlying information from the GAAP financial statements. In particular, the pension’s

service cost and prior service cost, while not required to be reported separately and for a subset

of employees, is computed in the process of calculating the aggregate service cost and prior

service cost at the plan level. As a result, a registrant would not be required to collect significant

new data or prepare a new calculation of the actuarial present value of the benefit earned during

the year, but would rather calculate service cost and prior service cost for a subset of employees

for which the underlying information is already available and subject to internal control over

financial reporting. The direct relationship of this information to the amounts recognized in the

audited financial statements may also provide an additional level of comfort to investors as to

its accuracy and reliability. In addition, because this approach excludes changes that derive only

from differences in the actuarial assumptions used to estimate the value of benefits already

earned in prior periods, it will provide for a more meaningful comparison across registrants of

the amounts “actually paid” under both defined benefit and defined contribution plans. Further,

as noted above, commenters were generally more supportive of a service cost approach rather

than an approach that would include the amount required to be disclosed in the Summary

Compensation Table. 145

One weakness in the proposed approach, identified by commenters, 146 was that the

service cost approach would not fully account for changes in the value of an executive’s

expected benefit arising from plan amendments or initiations. Our modified approach as

adopted addresses this concern by requiring that the registrant include, as a component of this

item of compensation actually paid, the entire cost of benefits granted in a plan amendment (or

initiation) that are attributed by the benefit formula to services rendered in periods prior to the

plan amendment or initiation. Such prior service cost information is part of the underlying

information required to account for a defined-benefit plan under U.S. GAAP. 147

For purposes of the final rules, “prior service cost” also refers to any credit arising from

a reduction in benefits related to services rendered in prior periods as a result of a negative plan

amendment. We acknowledge that including the prior service credit associated with such a

negative plan amendment would result in a reduction of compensation actually paid. We believe

that such an outcome would be consistent with the statutory objective of capturing

compensation actually paid, because the reduction in the accrued benefit reflects a reduction in

145

See supra notes 120 and 128.

146

See letters from AON and Mercer; see also letters from AON; Towers; and WorldatWork.

147

See FASB ASC Topic 715.

compensation in the same manner that an increase in the accrued benefit reflects an increase in

compensation.

Although one commenter also noted that service cost would exclude the costs related to

unexpected compensation changes, 148 we are not adopting a modification in this regard. Under

U.S. GAAP, 149 the effects on the projected benefit obligation of unexpected compensation

changes (i.e., changes from the estimated future compensation levels used in measuring service

cost) are recorded in actuarial gain or loss. In considering whether to add another component to

the tabular pension measure related to actuarial gain or loss due to unexpected compensation

changes, we determined that the benefits of isolating these items from other actuarial gains and

losses did not merit the costs and complexities associated with calculating the additional

adjustment. However, we note that information about compensation changes should still

generally be discernible by investors, as such compensation amounts would be included as other

components of the compensation disclosed in the Item 402(v) of Regulation S-K table.

We are not persuaded that the other alternative approaches recommended by

commenters 150 would more accurately reflect compensation “actually paid.” Although some of

the suggested alternatives could more fully account for changes in compensation levels by

reflecting unexpected increases in pay as well as plan amendments, 151 we believe that the

benefits discussed above with respect to the adopted approach, including its direct relationship

to the values already calculated for the purpose of financial statement reporting, outweigh the

148

See letter from Mercer.

149

See FASB ASC Topic 715.

150

See supra notes 131–134 and accompanying text.

151

See infra Section V.C.4.iii.

potential benefits of the alternatives. Further, while we acknowledge there may be an additional

cost to obtain the service cost and prior service cost information on a per participant basis, the

other calculations suggested by commenters also would include additional costs since

registrants are not currently performing those calculations in the manner suggested. 152 In the

case of commenters who suggested that we omit all pension cost amounts, we disagree that their

suggested approach would be a reasonable interpretation of compensation “actually paid.”

Although the approach we are adopting may not always perfectly reflect all potential changes in

pension value, the resulting measure is considerably more accurate than a measure that treats the

value of promised pension awards as zero when they may ultimately cost the registrant millions

of dollars.

We are also requiring that the calculation of “service cost” and “prior service cost” be

consistent with the definitions provided under U.S. GAAP. 153 As discussed above, 154 we

acknowledge that some commenters suggested alternatives to the U.S. GAAP definition;

however, we believe that this definition is appropriate because it reflects the service cost amount

included in the financial statements, and therefore is familiar to registrants. The final rules

require the entire amount of prior service cost related to a plan amendment to be included in the

pension measure rather than the amortized portion of prior service cost recognized as part of

periodic pension cost under U.S. GAAP for the year.

152

See letters from AON; Barnard; Exxon; Hermes (suggesting multiplying the value of the pension increase

during the year, net of any inflationary increase and contribution by the employee, by twenty); Mercer;

Towers; and WorldatWork.

153

See FASB ASC Topic 715.

154

See supra notes 131–134 and accompanying text.

Inclusion of Above-Market or Preferential Earnings on Deferred

Compensation That Is Not Tax Qualified

Proposed Amendments

Consistent with Summary Compensation Table disclosure requirements, we proposed

that the executive compensation actually paid would include above-market or preferential

earnings on deferred compensation that is not tax qualified. 155

ii.

Comments

Two commenters generally agreed with the proposed rules on disclosure of deferred

compensation that is not tax qualified. 156 Two other commenters recommended permitting

registrants to exclude unvested amounts of deferred compensation that is not tax qualified. 157

iii.

Final Amendments

We are adopting, as proposed, the requirement that executive compensation actually

paid include above-market or preferential earnings on deferred compensation that is not tax

qualified. We believe, as discussed in the Proposing Release, that excluding those amounts until

their eventual payout would make the amount “actually paid” contingent on an NEO’s choice to

withdraw or take a distribution from their account, rather than the registrant’s compensatory

decision to pay the above-market return, which we do not believe would be an accurate

representation of compensation “actually paid.” As with pension awards, these amounts may be

viewed to approximate the value that would be set aside currently by the registrant to satisfy its

obligations in the future. In addition, excluding those amounts would be inconsistent with the

155

These earnings are reported pursuant to 17 CFR 229.402(c)(2)(vii), or, for smaller reporting companies, 17

CFR 229.402(n)(2)(viii).

156

See letters from NACCO and TIAA.

157

See letters from Hyster-Yale and NACCO.

approach in the Summary Compensation Table, which requires disclosure of the underlying

deferred amounts when earned. 158 We believe that, to the extent the Summary Compensation

Table approach aligns with the statutory “actually paid” language and purpose of the disclosure,

we should minimize adjustments to the Summary Compensation Table figures, in order to make

disclosures easier to understand for investors and easier to produce for registrants. 159 To that

end, we are also not permitting registrants to voluntarily exclude unvested amounts of deferred

compensation that is not tax qualified, as we believe that could complicate investors’

understanding of the disclosure, and would limit the comparability of the “actually paid”

amounts across different registrants. 160

Equity Awards

Proposed Amendments

We proposed that equity awards be considered “actually paid” on the date of vesting,

and valued at fair value on that date, rather than fair value on the date of grant as required in the

Summary Compensation Table. In proposing this approach, we noted that an executive does not

have an unconditional right to an equity award before vesting, and therefore unvested options or

other equity awards may not be “actually paid” prior to the vesting conditions being satisfied,

which can be viewed as representing payment by the registrant. In addition, we noted that using

the vesting date fair value would incorporate changes in the value of the equity awards from the

158

See Instruction 1 to 17 CFR 229.402(c) and Instruction 1 to 17 CFR 229.402(n) (each providing that “[a]ny

amounts deferred, whether pursuant to a plan established under section 401(k) of the Internal Revenue Code

(26 U.S.C. 401(k)), or otherwise, shall be included in the appropriate column for the fiscal year in which

earned”).

159

See letters from Hyster-Yale and NACCO (both stating that “[t]he fewer adjustments that are made to the SCT

earnings, the easier the new proxy table will be for investors to understand and for companies to produce.”).

160

See infra Section II.C.3.iii (discussing the general approach taken in the final rules with respect to unvested

amounts of compensation).

grant date to the vesting date, with that change being one of the key ways that pay is linked to

registrant performance.

With respect to the calculation of the vesting date fair value, we noted that the vesting

date fair value of stock awards is already disclosed (by registrants other than SRCs) in the

Option Exercises and Stock Vested Table, 161 and that the vesting date fair value of option

awards can be calculated using existing models and methodologies. Specifically, the proposed

approach would require (i) the amounts reported pursuant to 17 CFR 229.402(c)(2)(v) and (vi)

to be deducted from Summary Compensation Table total, and (ii) the vesting date fair value of

stock awards and options (with or without stock appreciation rights), each computed in

accordance with the fair value guidance under U.S. GAAP, 162 to be added. As proposed, a

registrant would be required to disclose vesting date valuation assumptions if they are

materially different from those disclosed in its financial statements as of the grant date.

In response to comments received on the Proposing Release (discussed below), we

included a request for comment in the Reopening Release, noting commenters’ concerns that

there was a potential misalignment between the time period to which pay is attributed and the

time period in which the associated performance is reported, and asking if there were other

approaches that would alleviate this misalignment, or if the inclusion of the additional measures

considered in the Reopening Release would affect this misalignment.

161

See 17 CFR 229.402(g)(2)(v).

162

See FASB ASC Topic 718.

ii.

Comments

We received a number of comments on both the proposal to use fair value methodology

to value equity awards in the calculation of executive compensation actually paid, and on the

proposal to value such awards as of the vesting date.

Some commenters supported the proposed fair value methodology. 163 However, a

number of commenters opposed the approach, 164 noting that the calculation of fair value is time

consuming and expensive, particularly when many separate fair value calculations would be

required, as in the case of awards that are on a pro-rata vesting schedule or with multiple

tranches in a given year; 165 few companies have familiarity with valuing options that have been

outstanding for several years; 166 the assumptions that are included in fair value calculations are

company-specific and therefore would reduce comparability; 167 and that the fact that

assumptions and projections are included in fair value calculations is inconsistent with the

concept of “actually paid.” 168 As an alternative to fair value, a number of commenters suggested

the Commission require options to be valued at their intrinsic value, 169 or permit registrants to

163

See letters from AFL-CIO 2015; CII 2015; The Predistribution Initiative and Responsible Asset Allocator

Initiative, dated Mar. 4, 2022 (“PDI”); and TIAA.

164

See letters from BRT; CEC 2015; Celanese; Cook; FSR; Honeywell; Meridian; and PG 2015.

165

See letters from CAP; Cook; KPMG; and WorldatWork.

166

See letter from CAP.

167

See letter from IBC 2015.

168

See letters from CEC 2015; Meridian; and SCSGP.

169

See letters from CEC 2015 (supporting the use of intrinsic value if the Commission requires vesting date

reporting); Celanese (supporting the use of intrinsic value if the Commission requires vesting date valuation);

Coalition (supporting the use of intrinsic value if the commenter’s preferred principles-based approach to the

pay-versus-performance disclosure was not adopted); Corning; Hall; Honeywell (supporting the use of

intrinsic value if the commenter’s preferred principles-based approach to the pay-versus-performance

disclosure was not adopted); Mercer; Meridian; Pearl (supporting the use of intrinsic value if the Commission

does not adopt a realizable pay methodology) PG 2015; SCG; SCSGP; TCA 2015 (supporting the use of

intrinsic value if the commenter’s preferred principles-based approach to the pay-versus-performance

disclosure was not adopted); and WorldatWork. Many of these commenters had slightly different concepts of

choose between disclosure of fair value and intrinsic value (with the non-chosen value being

provided in footnote disclosure). 170 These commenters argued that intrinsic value is easier and

cheaper to calculate; 171 aligns with the value that the executives would receive upon immediate

exercise; 172 and does not include the valuation assumptions that accompany the fair value

methodology. 173 Some commenters suggested that if the final rules did not use intrinsic value,

they should instead use fair value with certain safe harbors or simplified assumptions that would

reduce the effort required to compute the valuation. 174

Some commenters supported valuing equity at the vesting date, 175 stating that valuing

equity at the vesting date will incorporate the grant date fair value and changes until vesting

(which “represent a direct channel, and one of the primary means, through which pay is linked

to registrant performance”), but will not include post-vesting changes (which “generally reflect

investment decisions made by the executive rather than compensation decisions made by the

registrant”); 176 will avoid “underestimating the actual compensation received by executives,”

which could occur if grant date reporting was required; 177 and “better reflect[s] the value

ultimately delivered to executives.” 178 Some commenters specifically opposed exercise date

how options should be valued, but they all generally supported using intrinsic value, or the difference between

the exercise price and the market price.

170

See letter from Hall.

171

See letters from Corning and Davis Polk 2015.

172

See letter from Corning.

173

See letter from Davis Polk 2015.

174

See letters from Mercer; TCA 2015 and TCA 2022. See also letter from Infinite Equity, dated Mar. 3, 2022

(“Infinite”) (suggesting that certain existing safe harbors should be acceptable for the new disclosures).

175

See letters from AFL-CIO 2015; CII 2015; Honeywell; PDI; and TIAA.

176

See letter from CII 2015.

177

See letter from PDI.

178

See letter from TIAA.

valuation, 179 while others supported requiring the vesting date valuation of stock awards, but the

exercise date valuation of options 180 or requiring the vesting date valuation of performancebased awards, but the grant date valuation of time-based awards. 181 Some commenters opposed

vesting date valuation, 182 with one arguing that valuing options at vesting date would be

misleading because executives do not generally include the option value in their income at the

time of vesting. 183 As alternatives, commenters suggested: valuing awards at the end of a multiyear period, such as a three-year period; 184 valuing equity at grant date but reversing the value at

the vesting date for awards that fail to vest; 185 revaluing outstanding equity awards annually; 186

or revaluing all equity granted during a period at the end of the most recent completed fiscal

year. 187

A number of commenters opposed the reporting of equity as of the vesting date. 188 Some

of these commenters noted that vesting date reporting of equity would lead to a timing

misalignment between actual performance and executive compensation actually paid, as the

performance that “earned” the equity would have occurred between the grant date and the

179

See letters from AFL-CIO 2015; CII 2015; and Honeywell.

180

See letters from Coalition (specifically recommending that compensation be deemed “actually paid” when

reported on Form W-2 for income tax purposes, which they state would include vested stock awards and

amounts received in connection with exercised options); Hall; and Mercer.

181

See letter from McGuireWoods.

182

See letters from Celanese; CCMC 2015; Cook; and NACD 2015.

183

See letter from Cook.

184

See letter from Farient.

185

See letter from SVA.

186

See letters from Hodak; Farient; Infinite; TCA 2015; and TCA 2022.

187

See letter from CAP; PG 2015; and PG 2022.

188

See letters from CAP; Celanese; CCMC 2015; Cook; FSR; McGuireWoods; NACCO; NACD 2015; NAM

2022; Ross; SVA; and TIAA. But see Hermes (expressly supporting vesting date reporting of equity).

vesting date, but only the total amounts of equity would be reported on the vesting date. 189

However, two commenters, who acknowledged the misalignment, indicated that there was no

other approach that would eliminate all misalignment. 190

Several commenters requested clarifications about the proposed approach. A few

commenters expressed that reporting equity on the vesting date creates uncertainty in

application, and either sought clarification regarding the vesting date or the meaning of when

“all applicable vesting conditions were satisfied.” 191 One commenter suggested that an award

should be considered vested on the date the executive is able to monetize the award, 192 while

another suggested that awards should only be considered “actually paid” when restrictions on

equity lapse, even if already vested. 193 Two commenters also made suggestions that awards

should be considered vested when the associated performance period is completed, even if the

vesting of the award is still subject to board certification. 194

Commenters suggested a number of alternatives to vesting date reporting of equity,

including: grant date reporting; 195 exercise date reporting; 196 exercise date reporting of the

equity’s intrinsic value; 197 principles-based reporting (i.e., allowing companies to make their

189

See letters from CEC 2015; Celanese; CCMC 2015; Cook; Faulkner; FSR; Hyster-Yale; NACCO; PG 2015;

Pearl; Ross; SBA-FL; SVA; TIAA; TCA 2015; and WorldatWork.

190

See letters from Aon HCS and Teamsters.

191

See letters from Cook; IBC 2015; Mercer; Pearl; and Towers.

192

See letters from Davis Polk 2015 and Davis Polk 2022.

193

See letter from CEC 2015.

194

See letters from Mercer and Towers.

195

See letters from CAP and NAM 2022.

196

See letters from CEC 2015; Coalition; and FSR.

197

Letter from Corning.

own modifications to the reporting date); 198 reporting “in the fiscal year for which the

compensation was considered as paid”; 199 and annual reporting, starting in the grant year, of the

year-end fair value of the award, with annual reporting of any change in the fair value until, and

including, the year of vesting. 200 Two commenters also suggested the Commission adopt the “2

½ month rule,” under which equity vesting in the first two and one half months of the calendar

year would be attributed to the prior year. 201 One commenter stated that, because the proposed

rules would move away from grant date fair value calculations for equity awards, it would be

important that the disclosure include dividends paid on unvested equity or equivalents for a

given year. 202

A few commenters supported the proposed requirement that changes in the underlying

assumptions for valuation that are materially different from those made in the financial

statements as of the grant date must be disclosed, with one specifically supporting the proposed

requirement, 203 one supporting requiring any changes from the assumptions in the current

financial statements to be disclosed, 204 and two opposing the disclosure of changes in valuation

assumptions. 205

198

See letter from Hall.

199

See letter from TIAA.

200

See letters from Infinite; TCA 2015; and TCA 2022. Other commenters made similar suggestions that vary

slightly from this suggestion, including by using intrinsic rather than fair value for options, measuring pay over

an aggregate time horizon rather than presenting data broken out by year, and revaluing vested as well as

unvested equity holdings. See letters from CAP; Farient; Hodak; PG 2015; and Pay Governance, dated Mar. 3,

2022 (“PG 2022”).

201

See letters from Hyster-Yale and NACCO.

202

See letter from TIAA.

203

See letter from CII 2015.

204

See letter from Towers.

205

See letters from Davis Polk 2015 and McGuireWoods.

In response to a request for comment in the Reopening Release, one commenter

indicated that the additional performance measures considered in the Reopening Release would

not exacerbate the timing misalignment, 206 while another stated the additional measures would

not improve the misalignment. 207

iii.

Final Amendments

After consideration of the comments received, we are modifying our approach to the

treatment of equity awards in relation to the total compensation reported in the Summary

Compensation Table. While the final amendments continue to use “fair value” as the measure of

the amount of an equity award, which is consistent with accounting in the financial statements,

we are adjusting the date on which the award is valued in response to comments, so that the first

fair value disclosure is made in the year of grant, and changes in value of the award are reported

from year to year until the award is vested. 208 We believe this approach will better align the

timing of the disclosure and valuation with when the award is actually “earned” by the

executive, resulting in disclosure that more clearly shows the relationship between executive

compensation and the registrant’s performance.

In particular, the proposed rules would have required the deduction of the equity award

amounts reported in the Summary Compensation Table total and the addition of:

•

The vesting date fair value of stock awards and options (with or without stock

appreciation rights), each computed in accordance with the fair value guidance under

U.S. GAAP.

206

See letter from Aon HCS.

207

See letter from McGuireWoods.

208

This approach was discussed as an implementation alternative in the Proposing Release. See Proposing

Release at Section IV.C.3.c. Two commenters specifically noted this implementation alternative and were

supportive of its adoption. See letters from Infinite; TCA 2015; and TCA 2022.

The final rules also require the deduction of the equity award amounts reported in the Summary

Compensation Table total; however, instead of the addition of the vesting date fair value of

stock awards and options, the final rules require the addition (or subtraction, as applicable) of

the following:

•

The year-end fair value of any equity awards granted in the covered fiscal year that are

outstanding and unvested as of the end of the covered fiscal year;

•

The amount of change as of the end of the covered fiscal year (from the end of the prior

fiscal year) in fair value of any awards granted in prior years that are outstanding and

unvested as of the end of the covered fiscal year;

•

For awards that are granted and vest in the same covered fiscal year, the fair value as of

the vesting date; 209

•

For awards granted in prior years that vest in the covered fiscal year, the amount equal

to the change as of the vesting date (from the end of the prior fiscal year) in fair value;

•

For awards granted in prior years that are determined to fail to meet the applicable

vesting conditions during the covered fiscal year, a deduction for the amount equal to

the fair value at the end of the prior fiscal year; 210 and

•

The dollar value of any dividends or other earnings paid on stock or option awards in the

covered fiscal year prior to the vesting date that are not otherwise reflected in the fair

209

There is no adjustment for awards that are granted and determined not to vest in the same covered fiscal year

because those awards result in no compensation actually paid.

210

For any of an executive’s equity awards that are determined to fail to vest, a negative amount equal to the fair

value at the end of the prior fiscal year would be included as part of the executive’s compensation actually paid

as of the date the registrant determines the award will not vest. This negative amount takes the cumulative

reported value of that award to $0 since it did not vest.

value of such award or included in any other component of total compensation for the

covered fiscal year.

We believe fair value is an appropriate measure for compensation “actually paid.”

Although fair value calculations, like all accounting estimates, do involve some subjective

assumptions, we do not agree with commenters that stated that the assumptions and projections

included in fair value calculations render such amounts inconsistent with the concept of

“actually paid.” 211 Fair value is an estimate of the amount by which an executive is

compensated as a result of an award, and therefore represents a reasonable measure of that

executive’s “actual pa[y].” Specifically, the fair value of an option is a widely-used measure to

estimate the total value of the asset, including both its value if exercised immediately (“intrinsic

value”) and the additional value created by the holder’s contractual right to exercise at some

time in the future (“time value” of the option). In our view it also represents a more accurate

measure of actual pay than alternatives recommended by some commenters.

We are not adopting the approach suggested by some commenters that we use other

measures such as intrinsic value. Intrinsic value would ignore the option value inherent in

exercisable awards prior to exercise, including the option value inherent in an option award that

is at-the-money or out-of-the-money (i.e., the stock price is equal to or less than the strike price

of the options), and therefore has zero intrinsic value. Intrinsic value (or any similar measure

used to calculate compensation “actually paid”) would also be a departure from the primary

disclosures related to equity compensation, and the recognition and measurement of such

compensation in the financial statements under U.S. GAAP, and we believe would not allow

investors to as easily link and analyze “compensation actually paid” with the other information

211

See supra note 168 and accompanying text.

they are receiving about executive compensation. Further, in 2004, the accounting for stockbased compensation in U.S. GAAP was revised to require fair value accounting. 212 In the

revised accounting standard, it was noted that other equity instruments and the consideration the

issuing entity receives in exchange for them are recognized in the financial statements based on

the fair value of the instrument at the date issued. The fact that the equity instruments would be

issued for goods or services rendered or to be performed did not seem to be a reason to measure

the cost of the goods or services performed on a different basis. The standard further noted that

most advocates of intrinsic value favored its use only at a grant date measurement, and noted

that there are weaknesses in its use even in that case, such as treating most fixed share options

as though they were a “free good.” 213 However, even at the grant date, employee services

received in exchange for share options are not free and there is value in the employee services

performed and the related stock and stock options received.

Registrants and investors are already familiar with fair value calculations and the

determination of the assumptions for such calculations through their use in existing Commission

disclosure requirements as well as U.S. GAAP. For example, the Grants of Plan-Based Awards

Table requires grant date fair value disclosure of each individual equity award granted during

the last completed fiscal year. 214 U.S. GAAP requires information about grant date fair value for

equity awards, including the weighted-average grant-date fair value of awards that were

212

See FASB SFAS No. 123 (Revised 2004), Accounting for Stock-Based Compensation (“FAS 123R”), which

was issued in December 2004 and superseded Accounting Bulletin Opinion No. 25, Accounting for Stock

Issued to Employees, which was an intrinsic value approach to stock-based compensation. FAS 123R was

codified in FASB ASC Topic 718.

213

Id.

214

See 17 CFR 229.402(d)(2)(vii) and Instruction 8 to 17 CFR 229.402(d).

granted, vested and forfeited during the year and a description of the significant assumptions

used during the year to determine the fair value of share-based compensation awards. 215

We do not agree with the suggestion from commenters that we consider an option or

other award requiring exercise to be “actually paid” only upon its exercise, as we believe doing

so would commingle the registrant’s compensatory decision with the executive’s investment

decision about when to exercise and would allow executives to influence pay-versusperformance disclosure by controlling the fiscal year in which they receive the compensation.

We additionally determined that year-over-year change in fair value better meets the statutory

purposes than grant-date fair value, because valuing awards only at grant date fails to reflect

increases in value to the executive after the grant date, during the period over which the

compensation actually paid is earned. Even if year-over-year change in fair value is only a

reasonable estimate, we believe it is far more accurate to include this estimate than to omit such

increases in value entirely.

We have changed the reporting and valuation date requirements from the Proposing

Release to first require the year-end reporting and valuation of awards granted during the fiscal

year and then the year-over-year change in fair value of such awards until the vesting date (or

the date the registrant determines the award will not vest).

We have made these changes to the reporting and valuation requirements to address

commenters’ concerns about potential misalignment between the time period to which pay is

attributed and the time period in which the associated performance is reported, and the degree to

which this would affect the usefulness of the disclosure. We believe that, compared to the

vesting date valuation approach included in the Proposing Release, the adopted approach will

215

See FASB ASC Topic 718-10-50-2.

more effectively allow registrants to describe the relationship between compensation and

registrant performance, as the reported amounts of compensation will annually adjust based on

the registrant’s performance, among other things, in that year. In addition, we acknowledge

commenters’ observation that comparability may be somewhat reduced by the assumptions that

are included in fair value calculations, which, as noted by a commenter, may differ from issuer

to issuer. Because investors are already familiar with fair value as the measurement approach

for equity awards under U.S. GAAP, they are aware of the reduced comparability that may

occur due to the use of different assumptions from issuer to issuer. However, we believe that the

use of a consistent measurement approach to equity compensation in the Summary

Compensation Table, the financial statements, and the calculation of compensation “actually

paid,” along with the required disclosures about significant assumptions under U.S. GAAP in

the final rules, allows for comparability with respect to an individual issuer’s disclosures from

year to year. Further, as discussed in the Proposing Release, 216 we believe that, overall,

comparability regarding the awards included by registrants in the disclosure will be greater

under the adopted approach than it would have been under the proposed approach, as volatility

in executive compensation actually paid across the disclosure periods that is due simply to

vesting patterns should decrease (as the amount of executive compensation actually paid will be

adjusted each year as it is “earned” over the course of the vesting period). 217

Investors will also be able to more easily understand the impact of performance on

awards-based compensation over time, because under the final rules as adopted investors will be

able to observe the amount by which the value of an executive’s compensation changes each

216

See Proposing Release, Section IV.C.3.c (considering the adopted approach as an implementation alternative).

217

See supra note 210.

year, rather than only observing the value of that compensation in the year an award vests.

Furthermore, we believe that the adopted approach in the final rules is similar to the concept of

realizable pay, recommended by some commenters, as it reflects an attempt to measure the

change in value of an executive’s pay package after the grant date, as performance outcomes are

experienced.

This approach to unvested equity compensation is consistent with the treatment of other

unvested elements of compensation under the final rules, such as unvested pension benefits and

contributions to unvested defined contribution plans. In each case, the adopted approach reflects

this compensation as it is earned rather than at vesting. We believe the consistent use of this

approach should reduce misalignment between the timing of when compensation is earned and

when it is reported, and allow the disclosure to more clearly represent the relationship of pay

with performance over time.

We also believe this revised approach for equity awards comports with the statutory

term “executive compensation actually paid.” While non-vested amounts of compensation could

be considered unpaid due to their contingent nature, over time the values reported in connection

with a particular award will aggregate to its ultimate value upon vesting. Aligning the

compensation reporting more closely with when the compensation changes in value also

provides investors with a clearer picture of “the relationship between executive compensation

actually paid and the financial performance of the issuer.” For example, where an award vests

over a three-year period and the registrant’s financial performance is positive in the first of

those two years and negative in the third, reporting the full value of the award only in the

vesting year may give investors the misleading impression that the executive was not rewarded

for positive performance in years one and two and was rewarded despite negative performance

in year three. In addition, the required reporting of the year-over-year change in fair value of

such awards until the vesting date (or a deduction for prior reported amounts as of the date the

registrant determines the award will not vest) will account for any amounts that fail to vest; will

address concerns, noted by commenters, that grant date reporting undervalues compensation

“actually paid”; and will not include those post-vesting changes that generally reflect the

executives’ investment decisions, not compensation. 218

We recognize that requiring fair value calculations for each equity award at a date other

than the grant date may be burdensome for some issuers, as noted by some commenters, 219

particularly those that have compensation programs with numerous and complex equity grants.

However, in the final rules we are not adopting a safe harbor or simplified assumptions other

than those generally accepted under U.S. GAAP, as suggested by some commenters. 220 Since

accounting for share-based compensation in U.S. GAAP was revised in 2004 to require fair

value accounting, 221 registrants have been accounting for equity compensation based on a fair

value approach and must determine valuation assumptions every time a new award is granted.

While commenters correctly noted that companies are not as familiar with the fair valuation of

218

Not all post-vesting date changes reflect the executives’ investment decisions, as vested awards could remain

subject to other restrictions (e.g., anti-hedging restrictions or holding requirements) that would limit the

investment decisions available to an executive.

219

See, e.g., letters from CAP (stating that “a fair value calculation for previously granted stock options at the

time of vesting, registrants will undoubtedly encounter many complications,” and noting that few companies

have familiarity with valuing options that have been outstanding for several years); Cook (stating that

“[c]alculating the fair value of stock options as of each vesting date will be a time-consuming and tedious

process”); KPMG (stating that “the vesting date fair value of share options will be more difficult for

companies than determining the grant date fair value of those awards”); and WorldatWork (describing the

proposed vesting date fair value approach as “burdensome”).

220

See supra note 174 and accompanying text.

221

See supra note 212 and accompanying text.

options after the grant date, U.S. GAAP requires the re-valuation of an award when modified, 222

so the concept of valuing a stock award before vesting is also not novel to registrants. As such,

registrants are required to have internal controls and processes over the valuation of stock

awards, including the assumptions used in determining fair value. 223 We believe that registrants

will likely rely upon the existing fair value processes and internal controls for stock-based

compensation, which should mitigate the concerns raised by commenters about assumptions. In

addition, the option and contingent-equity valuation models are well-developed and related

software solutions are widely available, which will further mitigate those additional burdens and

concerns related to valuation approach and related inputs.

The final rules also require footnote disclosure of any valuation assumptions that

materially differ from those disclosed at the time of grant, as in the proposal. 224 The proposal

did not specify how to disclose the valuation assumptions. Similar to U.S. GAAP, when

multiple awards are being valued in a given year, a registrant may disclose a range of the

assumptions used or a weighted-average amount for each assumption. In addition, the fact that

certain institutional investors and third parties (often proxy advisors or compensation

consultants) are already incorporating similar computations in their own pay for performance

analyses, 225 suggests that the adopted approach is already considered useful and operational by

some investors.

222

See FASB ASC Topic 718-20-35.

223

See also 17 CFR 240.13a-14, 13a-15, 15d-14 & 240.15d-15.

224

For example, there may be a material difference in assumptions if the registrant has made changes to key

assumptions that would have materially changed the grant date fair value if the assumption(s) applied as of

grant date.

225

See infra Section V.B.2.

Further, we are also requiring the dollar value of any dividends or other earnings paid on

stock or option awards in the covered fiscal year prior to the vesting date to be included in the

amount of executive compensation actually paid, if such amounts are not reflected in the fair

value of such award or included in any other component of total compensation for the covered

fiscal year. As noted by a commenter, the pay-for-performance disclosure should include

dividends paid on unvested equity or equivalents “as a result of the move away from grant date

fair value calculations for equity awards.” 226 Under the Summary Compensation Table total,

any such amounts would be typically included in the grant date fair value, as no such dividends

or earnings would have been paid on that date. However, if any dividends or other earnings are

paid on stock or option awards over time, these amounts would decrease future fair value

amounts. This decrease would not be reflective of a decrease in the amount “actually paid” to

the executive, to the contrary, the amount of the decrease would reflect actual dividends or

earnings paid to the executive prior to the valuation. We believe these amounts are

compensation “actually paid” and should be reflected in the disclosure.

Measures of Performance

Requirement to Disclose TSR and Peer Group TSR

Proposed Amendments

We proposed requiring all registrants subject to the proposed rule to use TSR as the

measure of financial performance of the registrant for purposes of the required disclosure. In

addition, we proposed requiring registrants that are not SRCs to disclose peer group TSR, using

either the same peer group used for purposes of Item 201(e) of Regulation S-K or a peer group

226

See letter from TIAA.

used in the CD&A for purposes of disclosing registrants’ compensation benchmarking

practices. 227

ii.

Comments

Commenters were divided on the use of TSR as a required financial performance

measure, with some commenters generally supportive, 228 and some generally opposed. 229

Additionally, some commenters opposed TSR being used as the sole measure of financial

performance. 230

Commenters in favor of including TSR as a required financial performance measure

noted that TSR is well-understood by investors; 231 is widely used by companies in setting

compensation; 232 is generally a fair representation of company performance; 233 will assist

companies “in articulating and providing justification for their compensation practices”; 234 will

increase comparability; 235 and reflects stock price fluctuations that regularly occur in response

227

See 17 CFR 229.402(b)(xiv).

228

See letters from Americans for Financial Reform Educational Fund, dated Mar. 18, 2022 (“AFREF”); Barnard

2015; Barnard 2022; BlackRock, dated July 2, 2015 (“BlackRock”); CalPERS 2015; CAP; CFA; CII 2015;

Farient; Hook; Infinite; OPERS; Public Citizen 2015; and TIAA.

229

See letters from American Securities Association, dated Mar. 14, 2022 (“ASA”); Aspen; Better Markets, dated

Mar. 4, 2022 (“Better Markets”); CCMC 2015; CEC 2015; Coalition; Cook; Dimensional Fund Advisors LP,

dated Mar. 3, 2022 (“Dimensional”); FedEx 2015; FSR; Hay; Honeywell; International Bancshares Corp.,

dated Mar. 3, 2022 (“IBC 2022”); McGuireWoods; NAM 2015; NAM 2022; NIRI 2015; NIRI 2022; and

SBA-FL.

230

See letters from BorgWarner; BRT; Celanese; Hall; Honeywell; Hyster-Yale; IBC 2015; ICGN; Mercer;

NACCO; NACD 2015; NACD 2022; PG 2015; Pearl; PNC; PDI; Judy Samuelson, dated Mar. 4, 2022

(“Samuelson”); SCG; SCSGP; Simpson Thacher & Bartlett, dated July 6, 2015 (“Simpson Thacher”); and

WorldatWork

231

See letters from Barnard 2015; Barnard 2022; CFA; and Farient.

232

See letters from Barnard 2015; Barnard 2022; BlackRock; CalPERS 2015; CFA; CII 2015; and Public Citizen

2015.

233

See letters from Barnard 2015; Barnard 2022; CII 2015; Farient; and OPERS.

234

See letter from CalPERS 2015.

235

See letters from Barnard 2015; Barnard 2022; CAP; CII 2015; Hodak; and TIAA.

to publicly known information and company leadership. 236 Commenters in favor of TSR also

observed that requiring its disclosure is consistent with the language in Section 953(a) that the

pay-versus-performance disclosure should “tak[e] into account any change in the value of the

shares of stock and dividends of the issuer and any distributions.” 237

Commenters opposed to the use of TSR, generally or as the sole measure of

performance, as well as a few commenters in favor of the use of TSR, 238 noted that TSR has

specific limitations, including: not necessarily being used by the subject company to determine

compensation; 239 being an unreliable performance measure for thinly-traded stocks; 240

incentivizing short-term performance at the expense of investors’ long-term best interests 241

(which some commenters indicated could incentivize companies to incorporate strategies to

inflate stock prices over the short term, 242 or to engage in buybacks 243); requiring lengthy

explanatory disclosures to explain any misalignments between compensation and TSR; 244

causing companies to adjust their compensation programs to more heavily rely on TSR; 245 being

subject to fluctuations based on circumstances outside of the control of companies, industries,

236

See letter from Infinite.

237

See letters from AFREF; CAP; CII 2015; and Public Citizen 2015.

238

See letters from AFREF; CalPERS 2015; CFA; and CII 2015.

239

See letters from CCMC 2015 and Coalition.

240

See letters from Hyster-Yale and NACCO.

241

See letters from AFREF; ASA; BlackRock; BRT; CCMC 2015; CEC 2015; Coalition; FedEx 2015; FSR; Hall;

IBC 2015; IBC 2022; Mercer; NACCO; NACD 2015; NAM 2015; NIRI 2015; Samuelson; SCG; Simpson

Thacher; and WorldatWork. But see letter from OPERS (stating that the use of TSR alone is not likely to drive

short-term decision-making).

242

See letters from Better Markets; IBC 2022; McGuireWoods; NACCO; Pearl; and PDI.

243

See letters from AFREF; Better Markets; PDI; and Samuelson.

244

See letters from Aspen; Celanese; Coalition; Exxon; Hyster-Yale; NACCO; NAM 2015; NIRI 2015; NIRI

2022; and PNC.

245

See letters from CEC 2015; CCMC 2015; Hall; Hay; Hermes; FSR; George S. Georgiev, dated Mar. 4, 2022

(“Georgiev”); McGuireWoods; Mercer; Pearl; PNC; SCSGP; Simpson Thacher; and WorldatWork.

and executives; 246 and being affected by the granting and vesting of stock options. 247 In

response to these concerns, some commenters (including commenters in favor of using TSR 248),

suggested permitting disclosure of other metrics alongside TSR. 249 Other commenters generally

stated that there was no single performance measure that would align with the compensation

plan of every registrant, and therefore suggested adopting a principles-based approach, allowing

companies to choose their own performance measures. 250 Alternatively, a number of

commenters suggested requiring registrants to disclose the actual metrics used in determining

their executive compensation, 251 or revising Item 402 of Regulation S-K to require disclosure of

“all” metrics actually used to determine NEO incentive compensation. 252

A number of commenters raised questions or made comments regarding the calculation

of TSR. A few commenters suggested that TSR should be presented as a percentage change

246

See letters from AFL-CIO 2015; Aspen; CEC 2015; Dimensional; FSR; Hay; IBC 2015; IBC 2022;

McGuireWoods; Mercer; NACCO; NIRI 2015; NIRI 2022; PDI; Pearl; Samuelson; and SBA-FL.

247

See letter from IBC 2022.

248

See letters from CalPERS 2015; CAP; CFA; CII 2015; Farient; OPERS; and TIAA.

249

See letters from CalPERS 2015; CAP; CFA; CII 2015; Davis Polk 2015; Davis Polk 2022 (stating that TSR

should be the only required measure, but that we should permit registrants to voluntarily disclose other

measures, particularly “[g]iven the complexity and importance of long-term incentive compensation”); Farient;

Hall; Mercer; NIRI 2015; OPERS; Pearl; Sacred Heart University, dated July 7, 2015; Simpson Thacher; and

TIAA. But see letter from IBC 2022 (stating, in response to the Reopening Release’s considered additional net

income, income or loss before income tax expense, and Company-Selected Measure measures, that the

inclusion of additional metrics does not fix the fact that the inclusion of TSR “overstates” the importance of

TSR).

250

See letters from BRT; Celanese; Exxon; Hall; Hay; Hyster-Yale; McGuireWoods; NACCO; PNC; SCG;

SCSGP; and Simpson Thacher.

251

See letters from AFL-CIO 2015; CCMC 2015; FedEx 2015; Hook (supporting the proposal, but stating “I

would like to see the metrics for comparison include focus on longer-term performance”); Public Citizen 2015

(specifically suggesting that the Commission “mandate a metric supplemental to the TSR of a company’s own

choosing that it contends would capture long-term performance”); and SBA-FL.

252

See letters from American Federation of Labor and Congress of Industrial Organizations, dated Mar. 2, 2022

(“AFL-CIO 2022”); AFREF; California Public Employees Retirement System Investment Office, dated Mar.

4, 2022 (“CalPERS 2022”); California State Teachers’ Retirement System, dated Mar. 2, 2022 (“CalSTRS”);

CII 2022; Georgiev; ICGN; and International Brotherhood of Teamsters, dated Mar. 3, 2022 (“Teamsters”).

instead of an indexed dollar value. 253 Others generally raised questions about the method used

for calculating TSR, 254 with some suggesting TSR should be calculated and disclosed as a oneyear measure, 255 others suggesting that TSR should be calculated as a rolling average, 256 and a

third group suggesting TSR be calculated as a cumulative average over the time period of the

disclosure. 257 Other commenters suggested that we permit registrants to decide the time period

used to calculate their TSR. 258

Commenters were also divided on our proposal to require registrants, other than SRCs,

to disclose peer group TSR. Some commenters supported requiring the inclusion of peer group

TSR, 259 while others suggested peer group disclosure should be optional. 260 A number of other

253

See letters from AON and Towers.

254

See letters from Anonymous, dated May 27, 2015; BorgWarner; CEC 2015; Cook; Hall; Honeywell; Mercer;

PG 2015; Pearl; TCA 2015; and Towers.

255

See letters from Cook; Infinite (suggesting that a one-year TSR would be consistent with Item 201(e) of

Regulation S-K, but that also including three-year and five-year TSRs may provide helpful context); TCA

2015; TCA 2022; and Towers. But see letter from Farient (opposing the calculation of TSR as a year-over-year

measurement). See also Davis Polk 2015 (stating that, if the Commission requires an annual TSR, we should

permit registrants to also disclose a multi-year TSR, because compensation may be based on multi-year

performance).

256

See letters from AFREF (supporting a “five year cumulative and rolling average”); CEC 2015 (supporting the

use of a three-year or five-year rolling average TSR); Honeywell (stating that a multi-year rolling TSR would

be more meaningful); ICGN; NACD 2015 (recommending the Commission require a three-year or five-year

TSR in addition to an annual TSR); and NACD 2022 (also recommending the Commission require a three-year

or five-year TSR in addition to an annual TSR). But see letter from PG 2015 (noting that a five-year rolling

TSR calculation would not be consistent with the Commissions intent).

257

See letters from Pearl (supporting a cumulative 5-year TSR measurement); PG 2015 (noting that a cumulative

TSR would be consistent with the Commission’s intent, but could “complicate[] comparisons by causing the

starting point for TSR measurement to change each year”); and Teamsters.

258

See letters from BorgWarner; Davis Polk 2015; Davis Polk 2022 (suggesting that TSR should be calculated “in

a manner that is consistent with the ways in which the compensation committee considers TSR in the pay

setting process”); Exxon (generally opposing the use of TSR, but stating that, if we require its use, we should

allow registrants to choose the time period for measuring cumulative TSR that best suits them); and NIRI

2015; see also letter from Huddart (suggesting each component of the PEO’s compensation actually paid be

associated with a requisite service period, and then requiring the calculation of TSR and peer group TSR over

the requisite service period of the component of the PEO’s compensation having the largest dollar value in a

given year).

259

See letters from As You Sow 2015; CalPERS 2015; OPERS; and TIAA.

260

See letters from AON and Hay.

commenters opposed the requirement to disclose peer group TSR, 261 arguing peer group

disclosure: is already disclosed in the performance graph required by Item 201(e) of Regulation

S-K; 262 is beyond the mandate of the Dodd-Frank Act; 263 will confuse or mislead investors; 264

will be expensive and/or time-consuming for registrants to calculate; 265 is difficult for

registrants to explain and would require lengthy disclosures; 266 is difficult to understand given

that frequent changes in peer groups 267 and different market conditions or performance cycles

affect different “peer” companies differently; 268 and creates issues relating to the difficulty for

companies to find adequate peers, limiting the ability to make direct comparisons between

registrants. 269 A number of commenters also opposed requiring weighted peer group TSR

(weighted by market capitalization), as used in Item 201(e) of Regulation S-K. 270 In addition,

one commenter suggested we permit multiple peer groups to be disclosed, if peer group TSR

disclosure is required. 271

261

See letters from ActiveAllocator Activist Capital Advisors L.P., dated Feb. 3, 2022; CCMC 2015; CEC 2015;

Celanese; Cook; Davis Polk 2015; FSR; Georgiev; Hyster-Yale; IBC 2015; IBC 2022; LWC; McGuireWoods;

Meridian; NACCO; NAM 2015; NIRI 2015; NIRI 2022; Pearl; PNC; SCG; SCSGP; TCA 2015; TCA 2022;

and WorldatWork

262

See letters from Exxon; Georgiev; Pearl; PNC; SBA-FL; and TCA 2015.

263

See letters from BRT; CEC 2015; Celanese; Davis Polk 2015; Exxon; FSR; Hay; Meridian; Pearl; PNC; and

WorldatWork.

264

See letters from CEC 2015; Celanese; Davis Polk 2015; Georgiev; Hay; Hyster-Yale; LWC; NACCO; and

PNC.

265

See letters from Celanese; Hyster-Yale; and NACCO.

266

See letters from BRT; CCMC 2015 (also noting that registrants may face public liability for assumptions made

regarding a peer’s performance); Davis Polk 2015 (similar); and SCSGP.

267

See letters from Hay; Hyster-Yale; and NACCO.

268

See letters CCMC 2015; Exxon; and Pearl.

269

See letters from Hay; Hyster-Yale; IBC 2015; FSR; NACCO; NAM 2015; and Pearl.

270

See letters from Allison; AON; Cook; Meridian; and Ross.

271

See letter from Pearl.

Commenters generally supported allowing registrants to have flexibility in setting their

peer groups for the pay-versus-performance disclosure. Commenters had various suggestions as

to how to achieve this flexibility, including allowing registrants to choose any peer group

referenced in the CD&A; 272 allowing the use of the peer group from either Item 201(e) of

Regulation S-K or the CD&A; 273 or allowing registrants to choose a peer group other than the

Item 201(e) of Regulation S-K or CD&A peer groups. 274 These commenters generally

supported requiring registrants to provide disclosure explaining the make-up of their peer

group. 275 One commenter, however, opposed giving flexibility to registrants in setting their peer

groups, and instead suggested requiring that the peer group should be the same as the peer

group used in benchmarking executive compensation. 276

Commenters raised questions about the impact of a registrant changing its peer group.

Some commenters advocated for requiring additional disclosure in the event that a registrant

changes its peer group, 277 including requiring the disclosure of comparative results of TSR for

all peer groups used in the disclosed time period. 278 Others questioned what impact the change

of a peer group would have on cumulative TSR, 279 with some commenters suggesting we only

272

See letter from SCSGP.

273

See letter from Quirin.

274

See letters from Barnard 2015; Corning; and Towers (specifically supporting allowing registrants to use the

peer group, if any, that is used in setting compensation).

275

See letters from Barnard 2015; Quirin; and SCSGP.

276

See letter from AFL-CIO 2015; see also letter from As You Sow 2015 (stating that “ideally” all registrants

would use the benchmarking peer group in their pay-versus-performance disclosure).

277

See letters from AFL-CIO 2015; Hermes; and SBA-FL.

278

See letter from Hermes.

279

See letters from Cook and Pearl.

require disclosure of the current peer group. 280 One commenter suggested that, if annual TSR is

used, the peer group in place in the respective year of disclosure should be the peer group used

to calculate the peer group TSR for that year of disclosure. 281

iii.

Final Amendments

We are adopting the requirement, as proposed, that all registrants subject to the final

rules use TSR, and that registrants (other than SRCs) use peer group TSR, as measures of

performance. As noted in the Proposing Release, Section 14(i) does not mandate we require

specific measures in the pay-versus-performance disclosure. However, the statute does provide

that the disclosures should “tak[e] into account any change in the value of the shares of stock

and dividends of the issuer and any distributions.” 282 While we recognize commenters’ concerns

that TSR is not an equally useful measure for all registrants (as it is not necessarily used by all

registrants to set compensation and is seen by some commenters to be an unreliable

performance measure for thinly-traded stocks), is subject to fluctuations based on circumstances

outside of the control of the registrant, and may be affected by the granting and vesting of stock

options, we believe that TSR is consistent with that statutory language. In addition, we believe

mandating a consistently calculated measure for all registrants will further the comparability of

the pay-versus-performance disclosures across registrants, as noted by some commenters. 283 We

acknowledge, as noted by some commenters, that some registrants may need to provide

somewhat lengthy explanatory disclosures to explain any misalignments between compensation

and TSR; however, we believe those disclosures are the types of disclosures intended by the

280

See letters from Cook and Quirin.

281

See letter from Cook.

282

15 U.S.C. 78n(i).

283

See supra note 235.

language of Section 14(i), and will help investors understand the relati

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