Compensation committees facing wave of Dodd-Frank disclosures
In the coming year, public company compensation committees face the task of overseeing the disclosure of information related to clawback policies, executive pay versus company performance, and the ratio of CEO pay to the median employee.
The questions on the minds of many compensation committees and boards are: How do we prepare for such disclosures? How will they affect the compensation package and the disclosure process? How will they affect our say on pay vote? Should a third party be brought in to help? What are the implications for the Compensation Discussion & Analysis (CD&A) section of the proxy statement?
Of these most recent disclosures originated by the Dodd-Frank Act, only the CEO pay ratio rule has been finalized, but it won’t be effective until the 2018 proxy season. The clawback policies and pay versus performance rules were proposed in the past four months, and expected to be finalized by April 2016. While many companies adopted clawback policies after the Sarbanes-Oxley Act was passed in 2002 and include some degree of pay versus performance information in their CD&A, the requirement to disclose the CEO pay ratio is likely a new concept for most organizations.