Public companies need to disclose pay-versus-performance measures to SEC

Vikrant Shetty

April 10, 2023

4:41 pm

In recent years, investors and the general public have become increasingly interested in how companies are spending their money. In particular, there is a growing concern over whether or not companies are paying their executives too much money. One way to address this concern is for public companies to disclose pay-versus-performance measures to the Securities and Exchange Commission (SEC).

Why public companies should disclose pay-versus-performance measures to SEC

There are a number of reasons why public companies should disclose pay-versus-performance measures to the SEC. First, it would allow investors and the general public to see how much of a company’s budget is going toward executive compensation. Second, it would help to ensure that executives are actually being paid for performance, rather than simply for showing up to work. Finally, it would provide some accountability for how shareholder money is being spent.

Overall, disclosing pay-versus-performance measures to the SEC would be a good move for public companies.

What is Pay-versus-performance?

Final regulations implementing the compensation versus performance provision mandated by Congress in the Dodd-Frank Act were adopted by the Securities and Exchange Commission.

The rules will require registrants to describe how the executive remuneration actually paid by the registrants related to the financial performance of the registrants over the time period of the disclosure in proxy or information statements in which executive compensation disclosure is required. Unfortunately, many companies do not disclose this information to shareholders. The Securities and Exchange Commission (SEC) has proposed a rule that would require public companies to disclose their pay-versus-performance measures.

How can pay-versus-performance help investors?

In order to help investors make more informed decisions, public companies should disclose pay-versus-performance measures to the SEC. This information can help investors assess whether a company’s executive compensation is aligned with its financial performance.

Pay-versus-performance disclosure can also help investors evaluate a company’s governance practices. For example, if a company pays its executives well even when the company is not performing well, this may be a sign that the board of directors is not adequately overseeing management.

Disclosure of pay-versus-performance information can also help investors compare different companies’ compensation practices. This information can be particularly useful for investors who are considering investing in companies that are in the same industry or have similar business models?

What are the benefits of disclosure?

In recent years, activist investors have been pushing for companies to disclose pay-versus-performance measures to help shareholders assess whether executives are being paid appropriately. While some companies have been resistant to this disclosure, there are many benefits that can come from it.

For one, disclosure of pay-versus performance can help to align the interests of shareholders and executives. If shareholders can see that executives are only being paid well when the company is performing well, they will be more likely to support management’s decisions. This alignment of interests can lead to better decision-making and overall improved performance.

Additionally, disclosure of pay-versus performance can help to attract and retain top talent. Executives who know that they will only be rewarded for strong performance will be more likely to stay with a company and work hard to achieve results.

Are there any drawbacks to disclosure?

There are some drawbacks to disclosure. One is that it can be costly and time-consuming for companies to compile the necessary information. Additionally, disclosure may provide ammunition for activist investors who are seeking to make changes at a company. Finally, pay-versus-performance disclosure may create pressure on companies to revise their compensation packages in order to look more favorable in the eyes of investors.

Summary:

The Securities and Exchange Commission should require public companies to disclose pay-versus-performance information to shareholders, according to a new report from The Conference Board.

“This overwhelming level of support makes it clear that investors believe this type of disclosure would be valuable,” said Peter Clapman, senior fellow and head of corporate governance at The Conference Board. “We urge the SEC to move forward with a rule requiring public companies to disclose this information.

Vikrant Shetty

April 10, 2023

4:41 pm

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