U.S. SEC proposes asking companies to say why CEO pay and performance often don’t match up

The seal of the U.S. Securities and Exchange Commission (SEC) is seen at their headquarters in Washington, D.C., U.S., May 12, 2021. REUTERS/Andrew Kelly/File Photo

WASHINGTON, Jan 27 (Reuters) – Public companies in the United States would be required to disclose how the pay of their top executives squares with their overall performance under a Securities and Exchange Commission rule proposed on Thursday.

The pay-versus-performance measure, which builds on a 2015 SEC proposal mandated by the 2010 Dodd-Frank financial reform law, calls for companies to disclose performance measures beyond total shareholder return and to list the five most important performance measures used to determine compensation actually paid to executives.

Wednesday’s rule, which must first receive public consultation before it can take effect, also asks whether companies should spell out whether pretax net income and net income would be useful additional financial metrics.

“This proposed rule would strengthen the transparency and quality of executive compensation disclosure,” said SEC Chair Gary Gensler, adding that the agency “has long recognized the value of information on executive compensation to investors.”

The move also comes amid a push by President Joe Biden’s administration to force listed companies to review working conditions, pay equity, hiring and retention policies.

It follows complaints by investor and employee advocates who have long wanted more details on how listed companies incentivize its labor force across all levels, including a company’s top executive.

Advocates argue that the best-paid CEOs do not necessarily run the best-performing companies. Industry groups have said the approach by the SEC could ultimately confuse investors.

Wednesday’s measure would also solicit additional feedback on the agency’s 2015 proposal, which called for companies to provide a table in their proxy statements that contains the total compensation actually paid to their principal executives, the total shareholder return on an annual basis, and the shareholder return on an annual basis of peer group companies, among other things.

Reporting by Katanga Johnson in Washington; editing by Jonathan Oatis

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