Client Alert – SEC Pay Versus Performance Disclosure Rules

Key Table Considerations

How to Calculate Compensation Actually Paid (CAP): This will differ from the Summary Compensation Table (SCT) amounts by the following:

• Change in Pension Value Adjustments: Instead of SCT values, this table will instead be reflective of the “service cost” for the appropriate year (excluding changes due to interest rates, age, and other actuarial assumptions) plus the additional service cost of any amendments during the current year that impacts prior year service costs.
• Change in Equity Values: Instead of the SCT values, which focus on the grant date fair value of stock and option-based awards, the equity value will be reflective of the following:
  1. Awards granted in the current year: The fair value of these equity awards as of fiscal year-end
  if unvested or the fair value at vesting date if the equity grant vests during this same year.
  2. Unvested awards granted in prior years: The year-over-year change in the fair value from the
  end of the prior fiscal year through the current fiscal year-end.
  3. Awards vesting in the current year that were granted in prior years: The year-over-year change
  in the fair value from the end of the prior fiscal year through the vesting date.
  4. Dividends: The actual amounts paid to the executive.
  
  
• Peer Group Selection: The Company can use either the peer group utilized under Item 201(e) of Reg. S-K (stock price performance graph in the 10K) or the compensation benchmarking peer group as disclosed in the Compensation Discussion & Analysis (CD&A).
• Company Selected Measure: This is the most important financial measure (as chosen by the Company) that relates to executive pay.

Other Key Items

• Small Reporting Companies (SRCs): SRCs will have reduced disclosure requirements. An example is the SRCs do not have to disclose a peer group TSR value and do not have to provide the key performance metric tabular list (see below).
• Key Performance Metric Table: Companies need to provide a tabular list of three to seven measures that are considered the most important measures in determining CEO and NEO pay. At least three measures must be considered financial metrics. Different metrics can be used for
  the CEO and each NEO.
• Disclosures: There is a requirement to disclose the relationship between CEO and NEO Compensation Actually Paid (CAP) amounts versus Company TSR, Company Net Income, and the Company Selected Measure. These relationships need to be disclosed by either a graphical or narrative approach. Additionally, a discussion surrounding the Company TSR versus the Peer Group TSR will be required.