14 September 20228 minute read

New executive compensation disclosure requirement for the 2023 proxy season

The SEC has adopted final rules requiring that proxy statement disclosures reflect the relationship between the payment of executive compensation and a reporting company’s financial performance.  The new disclosure applies to all SEC reporting companies, except foreign private issuers, registered investment companies and emerging growth companies, and will be required for fiscal years ending on or after December 16, 2022. Scaled disclosure requirements apply to smaller reporting companies.

This new pay-versus-performance disclosure will need to be tagged using Inline XBRL and written using the style set out in the SEC’s A Plain English Handbook.  


Although new disclosure requirements generally follow the 2015 proposal, the final rules require issuers to calculate the value of certain equity and pension awards in more detail than would have been required under the proposed rule.




In 2015, to implement Section 953(a) of the 2010 Dodd-Frank Act, the SEC first released “pay versus performance” proposed rules. The initial proposed rules would have required total shareholder return (TSR) as the sole measure of financial performance.  However, certain companies raised concerns that disclosing only the company’s TSR would provide an incomplete picture of the company’s performance. 


Due in part to certain developments since 2015, including recent trends in executive compensation practices, on January 27, 2022, the SEC dusted off its proposed rule and reopened a 30-day comment period, asking companies to provide comments on various aspects of the rule.  In particular, the SEC asked whether the disclosure should include a tabular list of the company’s most important performance measures used to determine executive compensation.  


Adopted rules


New Item 402(v) of Regulation S-K will require that companies provide a table disclosing specified executive compensation and financial performance measures for the company’s five most recently completed fiscal years (the initial disclosure will generally require reporting for only three years, and then additional years will be added each reporting year thereafter).  In addition, a description of the relationship between the company’s TSR and its Peer Group TSR must be described.

The table must include for the principal executive officer (PEO) and, as an average, for the other named executive officers (NEOs), the Summary Compensation Table (SCT) measure of total compensation, and a measure reflecting “executive compensation actually paid,” as specified by the rule.

The four main financial performance measures to be included in the table for each of the company’s five (or, at first, three) most recently completed fiscal years are as follows:

  1. TSR for the company

  2. TSR for the company’s peer group

  3. The company’s net income and

  4. A financial performance measure chosen by the company and specific to the company that, in the company’s assessment, represents the most important financial measure the company uses to link compensation actually paid to the company’s NEOs to company performance for the most recently completed fiscal year (the Company-Selected Measure).

Based on these measures, a pay-versus-performance table must be prepared that includes the following elements:

SCT total for PEO is the total compensation paid to any PEO, as reported in the SCT, should be included for the covered fiscal year.

Compensation actually paid to PEO: Starting with the PEO’s SCT total compensation, make adjustments for equity award values.  For equity awards granted during the year, this involves replacing the SCT value of unvested awards with their fair value at year end or, if vested, their fair value on the vesting date.  For awards granted in prior years, this involves replacing the SCT value with the change in fair value from the prior year-end to either the new year-end, in the case of unvested awards, or to the vesting date, in the case of vested awards.  For pension plan amounts, this involves replacing the change in the actuarial present value of accumulated benefits under defined benefit and actuarial pension plans from the SCT value and adding the “service cost” for such plans.

Average of all non-PEO NEOs’ SCT total compensation: All non-PEO NEO’s Summary Compensation should be averaged for the covered fiscal year.

Average of total compensations actually paid to non-PEO NEO: Starting with each of the non-PEO NEO’s SCT Total Compensation, make similar adjustments to those made for compensation actually paid to PEO and disclose the average of all non-PEO NEO’s total compensation.

TSR for the company should be calculated in the same manner as for Item 201(e) of Regulation S-K for the performance graph based on a fixed investment of $100 at the measurement point. 

Peer Group TSR should be calculated either using the peer group index used for Item 201(e) of Regulation S-K for the performance graph or using the peer group described in the company’s Compensation Discussion and Analysis.  Peer Group TSR is weighted according to each peer company’s market capitalization and based on a fixed investment of $100 at the measurement point. 

Company’s net income is the net income for the covered fiscal year.

Company selected measure is the most important financial performance measure used by the company to link compensation actually paid to its NEOs (and not otherwise already included in the table).

Similar to general disclosure requirements, the table must include a narrative, graphical or combined narrative and graphical description of the relationships between the executive compensation paid and the company’s TSR and the relationship between the company’s TSR and the Peer Group TSR.

In addition, the following items must be included:

  • A clear description of the relationships between each of the financial performance measures included in the table and the executive compensation actually paid to its PEO and, the average of its other NEOs over the company’s five (or three) most recently completed fiscal years.
  • A description of the relationship between the company’s TSR and its chosen Peer Group TSR.
  • Provide, in tabular, unranked format, a list of three to seven financial performance measures that the company determines are its most important measures (using the same approach as taken for the Company-Selected Measure) used by the company to link executive compensation actually paid to its PEO and other NEOs during the fiscal year to performance. Companies are permitted, but not required, to include non-financial measures in the list if they considered such measures to be among their three to seven “most important” measures.

A sample pay-versus-performance table appears as Appendix 1 to this alert.

Action items for public companies


Compensation committees, their advisors, and management teams should begin preparing for the SEC’s new pay-versus-performance rules.  Near-term action items include:


  • Begin to identify the company’s most important financial performance measures used to link pay to company performance.
  • Ensure that disclosure controls and procedures capture the new data and calculations, such as “compensation actually paid,” service costs, year-end fair values, and vesting-date fair values.
  • Determine the key performance measurements, format of disclosures, placement of pay-versus-performance table, peer group – each of these are key pieces of the narrative to be told through the company’s disclosure.   
  • Consider how to clearly explain methodologies of financial performance calculations, including reconciliations for any non-GAAP financial measures, to avoid confusion or misunderstanding.
  • Ensure that reporting teams are ready to tag the new disclosure using iXBRL.
  • Be aware that the “compensation actually paid” is generally not the same as the “realized pay” or SCT Total Compensation, because of their different methods of calculations.

The rule will be effective 30 days after Federal Register final publication and companies must begin to comply with the new requirements for fiscal years ending on/after December 16, 2022.

Learn more about the impact of the new rules on your company by contacting any of the authors or your DLA Piper relationship attorney.


҂ Sherry Klenk is a consultant with DLA Piper’s Employee Benefits and Executive Compensation group, based in Chicago, and Liliana Fehst is an intern with DLA Piper’s Knowledge Management team.  

* Not applicable to smaller reporting companies.