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Journal entry — SEC proposes new rules for pay-versus-performance and cross-border security-based swaps

Published on: Apr 30, 2015

Yesterday, the SEC issued (1) a proposed rule on pay versus performance disclosures and (2) a proposed rule on cross-border security-based swap transactions related to activity in the United States. Comments on both proposals are due 60 days after their publication in the Federal Register.

Pay Versus Performance

The proposed pay-versus-performance rule1 would require companies — except foreign private issuers, registered investment companies, and emerging growth companies — to disclose “in a clear manner  the relationship between executive compensation actually paid and the financial performance of the registrant” in proxy or information statements in which executive compensation disclosures are required. SEC Chair Mary Jo White believes that the proposed disclosures “can assist shareholders in assessing a company’s executive compensation practices and policies [and inform them] when voting in an election of directors and in connection with a shareholder’s advisory vote on executive compensation.”2

Under the proposal, a company would be required to disclose, in a new table, the following information for its last five fiscal years:

  • Executive compensation actually paid to its principal executive officer, which would be the total compensation amount already disclosed in the summary compensation table required in the proxy statement, adjusted for certain amounts that were not actually paid (e.g., for pensions and equity awards).
  • The average compensation actually paid to the remaining named executive officers identified in the summary compensation table. 
  • Total executive compensation reported for the principal executive in the summary compensation table, and the average of amounts reported for the other named executive officers.
  • Total shareholder return (TSR) of the company on an annual basis.
  • TSR, on an annual basis, of companies in the same peer group used in the company’s stock performance graph or its compensation discussion and analysis.

The company would be required to tag the disclosures in an interactive data format (i.e., eXtensible Business Reporting Language — XBRL). In addition, on the basis of the information in the table, the company would be required to describe the relationships between (1) executive compensation actually paid and the company’s TSR and (2) the company’s TSR and the TSR of its peers.

Smaller reporting companies would (1) not be required to present a peer group TSR, (2) only have to provide information for the last three fiscal years, and (3) be permitted to phase in the interactive data requirements.

If finalized, the disclosure requirements would be phased in. For additional information, see the SEC’s press release.

Cross-Border Security-Based Swaps

The proposed rule on cross-border security-based swap transactions3 would, as noted in the SEC’s press release, “require a non-U.S. company that uses U.S. personnel to arrange, negotiate, or execute a transaction in connection with its dealing activity to include that transaction in determining whether it is required to register as a security-based swap dealer.” According to Ms. White, the “rules will help ensure that both U.S. and non-U.S. dealers are subject to [the SEC’s] registration, reporting, public dissemination and business conduct requirements when they engage in security-based swap activity in the United States, resulting in increased transparency and enhanced stability and oversight.”


1 The proposed rule amends Regulation S-K, Item 402, to implement Section 14(i) of the Securities Exchange Act of 1934, as added by Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).

2 Quoted from her statement at the SEC’s open meeting on April 29, 2015.

3 In June 2014, the SEC adopted final rules and guidance on cross-border issues arising under Title VII of the Dodd-Frank Act related to determining when market participants that were engaged in cross-border security-based swaps would be subject to SEC regulations that apply to security-based swap dealers or major security-based swap participants. At that time, however, the Commission deferred consideration of whether the Title VII requirements apply to activities in the United States related to non-U.S. counterparties.

SEC proposes new rules for pay-versus-performance and cross-border security-based swaps Image

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