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Proposed Rule on Executive Compensation and Performance

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Shareholders Can Gain a Better Understanding of Corporate Governance

On April 29, 2015, the SEC proposed a ruling that would require corporations to disclose the relationship between executive pay and fiscal performance. SEC Chair Mary Jo White stated that the ruling would better inform shareholders of voting proposals set forth by companies and provide a new measure for evaluating companies. White added that the proposed rules would allow for an optimized disclosure method that can be used as another tool for comparing results with other companies.

How the Proposed Rules Affect Tagging in XBRL

Under the proposed ruling, companies will need to disclose executive compensation and performance results in a new table that that will need to be tagged in XBRL format. Companies will need to convey the amount paid to its principal executive officers using the information disclosed in the summary compensation table from its proxy statement. Adjustments will need to be made to amounts included in pension and equity awards. Additional compensation amounts for executive officers would be derived from the average compensation paid to those executives.

Furthermore, companies would need to disclose its total shareholder return ("TSR") on an annual basis. In addition, the TSR would be compared with related corporations in a peer group. Large and Midsize companies will be required to disclose this information from the previous five years. Smaller Reporting Companies will only be required to disclose the preceding three fiscal years of information. The ruling will implement phase-in periods for the requirements.

The proposed rules will be subject to a 60 day comment period prior to approval.

Published: May 21, 2015

Author: Dan Carter