SEC hosts roundtable on executive compensation disclosure requirements

Introductory remarks by SEC Chair Paul Atkins set the tone for the three SEC representatives in attendance, with Chair Atkins referring to the current disclosure regime as a “Frankenstein patchwork of rules” and SEC Commissioner Hester Peirce drawing a comparison between the current disclosure requirements and a focus on “random trees at the expense of a realistic view of the forest.” At the root of the roundtable was a question posited by Chair Atkins in a statement issued in advance: Has the increased complexity and length of executive compensation disclosures provided investors with additional information that is material to their investment and voting decisions?

Topics discussed covered the gamut of disclosures required under Item 402 of Regulation S-K, including the Summary Compensation Table (SCT), other tabular disclosures, and the Compensation Discussion and Analysis narrative disclosures, as well as rules implemented in the wake of the Dodd-Frank Act of 2010, such as the introduction of mandatory Say-on-Pay proposals, pay versus performance (PvP) and CEO pay ratio disclosures, and the recently finalized clawback rules. While the debate was lively, there appeared to be a broad consensus that the current disclosure framework warrants meaningful reevaluation in light of considerations such as the direct costs associated with the ever-growing list of disclosure requirements, externalities arising from the potential distortion of corporate behavior in response to various mandates, and other deficiencies.

The three topics that received the most attention from moderators and panelists alike included two Dodd-Frank mandates (the PvP and CEO pay ratio disclosures) and the classification of personal executive security expenses as a “perquisite.” Absent a few dissenting voices, participants generally took the position that the perceived benefits of the current PvP and CEO pay ratio disclosures are outweighed by the significant costs incurred in satisfying the disclosure requirements. Several panelists representing both issuers and investors pushed back at the classification of personal security as a perquisite warranting disclosure in the SCT. However, panelists appeared open to the concept of disclosure of personal security benefits, provided such perquisite was not a component of Named Executive Officer pay in the SCT.

Given that many of the disclosures discussed during the roundtable are mandated by statute, including PvP, CEO pay ratio, and the clawback rules, it is somewhat unlikely that meaningful reforms will follow in the near term. The SEC can, however, provide updated guidance on perquisite disclosure, as current disclosure standards generally arise from existing SEC guidance and not law. Chair Atkins framed the roundtable as “one of the first steps” in reevaluating the current executive compensation disclosure regime. The SEC is soliciting public comments as part of this reevaluation, which can be submitted in paper, email, or electronically.