The SEC has proposed rules that would require public companies to disclose the median of the annual total compensation of all employees, the annual total compensation of the CEO and the ratio of these two amounts. The proposed disclosure would be required in any annual report, proxy or information statement or registration statement that requires executive compensation disclosures. The proposed disclosure requirements would not apply to emerging growth companies, smaller reporting companies or foreign private issuers.
Also, the SEC is expected to issue a proposed rule this year that would require listing exchanges to require that companies adopt a compensation clawback policy in cases of financial restatements. The Dodd-Frank Act rule would allow companies to recoup compensation from executives when there is an accounting restatement even if fraud has not been committed. These new provisions will be broader than the Sarbanes-Oxley Act clawback rules.
Boards continue to take measurable actions in response to their company’s most recent say on pay voting results, according to the 934 directors responding to PwC’s 2013 Annual Corporate Directors Survey. This is happening relative to additional pressures for more compensation-related disclosure and new proposed compensation clawback policies in the event of a financial restatement.
Last year 70% of directors say their boards took some form of action following their say on pay vote—an increase from 64% in 20122. The most frequent change is enhancing proxy statement compensation disclosures (47% compared to 41% last year). Twenty-seven percent of directors either increased their use of compensa¬tion consultants or hired new consultants, an increase from 19%. Other popular changes include making compensation more performance-based and altering peer benchmark groups (36% and 21%, respectively). And the percentage of boards that changed the membership of the compensation committee doubled from 2012 levels (to 10% from 5%).
Directors would be well-served to understand a company’s significant compensation policies and discuss whether these policies appropriately layer in risk considerations and long-term corporate stability. An understanding of last year’s negative say on pay shareholder voting is an important step as well as evaluating any particular compensation provisions that concern proxy advisors and shareholders. In turn, proxy disclosures and external communications should be designed to address controversial areas.
“The Dodd-Frank Act left us with many unanswered questions. For example, how will clawback policies become operational? When will they be triggered? How deep in the organization do they go? We will have to wait for the SEC's rules to be issued in order to fully understand the Act's impact."
—Catherine Bromilow, Partner, Center for Board Governance
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Learn what PwC has to say about executive compensation:
Additional information about executive compensation:
PwC’s 2013 Annual Corporate Directors Survey, Executive compensation.