November 28, 2023
Just in Time for the Holidays: More PvP CDIs Are Here!
Last week was an incredibly active holiday week for Corp Fin, with several rounds of CDIs that Dave covered in this blog. But there’s more! Here’s something Meredith blogged yesterday on CompensationStandards.com:
Just before Thanksgiving, the SEC gave us even more to be thankful for — eight new and two revised CDIs on the pay-versus-performance disclosure requirements. I’ve paraphrased each new CDI and linked to the full text below.
1. New Question 128D.23 – Dividends or dividend equivalents paid that are not already reflected in the fair value of stock awards or included in another component of total compensation must be included in the calculation of executive compensation actually paid.
2. New Question 128D.24 – If a registrant uses more than one published industry or line-of-business index for purposes of Item 201(e)(1)(ii), the registrant may choose which index it uses for purposes of its PvP disclosure and should include a footnote disclosing the index chosen. If the registrant chooses to use a different published industry or line-of-business index from that used by it for the immediately preceding fiscal year, it is required to explain the reasons for the change in a footnote and provide a comparison against both the newly selected peer group and the peer group used in the immediately preceding fiscal year.
3. New Question 128D.25 – A registrant may not use the broad-based equity index it uses to determine the vesting of performance-based equity awards based on relative TSR as its peer group for purposes of Item 402(v)(2)(iv).
4. New Question 128D.26 – Market capitalization-based weighting is required for purposes of Item 402(v)(2)(iv) only if the registrant is not using a published industry or line-of-business index pursuant to Item 201(e)(1)(ii).
5. New Question 128D.27 – If a registrant uses a benchmarking peer group and adds or removes companies, is it required to footnote the changes and compare its cumulative total shareholder return with that of both the updated peer group and the peer group used in the immediately preceding fiscal year. However, if an entity is omitted solely because it is no longer in the business or industry or the changes were made pursuant to pre-established objective criteria, presenting both comparisons is not required, but a specific description of the change and the basis for the change must be disclosed, including the names of the companies removed. This is consistent with CDI 206.05 regarding disclosure under Item 201.
6. New Question 128D.28 – The staff will not object if a registrant that loses SRC status as of January 1, 2024 continues to include scaled disclosure under 402(v)(8) in its proxy filed not later than 120 days after its 2023 fiscal year end, forward incorporated into the 10-K. The PvP disclosure must cover fiscal years 2021, 2022, and 2023.
Unless the registrant subsequently regains SRC status, any other proxy filed after January 1, 2024 must include non-scaled PvP disclosure. However, a registrant generally is not required to revise disclosure for prior years to conform to non-SRC status, and the staff will not object if the registrant does not add disclosure for a year prior to those included in the first filing with PvP disclosure. But the registrant should include peer TSR — measured from the market close on the last trading day before the registrant’s earliest fiscal year in the table — and its numerically quantifiable performance under the Company-Selected Measure for each fiscal year in the table, and disclosure provided for all fiscal years must be XBRL tagged.
7. New Question 128D.29 – The registrant is required to include PvP disclosure in any proxy or information statement filed after it loses its EGC status, but may apply the transitional relief in Instruction 1 to Item 402(v) (that disclosure may be provided for three years instead of five in the first filing with PvP disclosure and an additional year in each of the two subsequent annual filings).
8. New Question 128D.30 – When multiple individuals served as PFO during one covered fiscal year, for purposes of calculating average compensation for the NEOs other than the PEO, the registrant may not treat the PFOs as the equivalent of one NEO. Each must be included individually in the calculation of the average, but additional disclosure regarding the impact on the calculation should be considered.
I’ve also included marked versions of the revised CDIs.
Question: In each of 2020 and 2021, a registrant provided the same list of companies as a peer group in its Compensation Discussion & Analysis (“CD&A”) under Item 402(b) but provided a different list of companies in its CD&A for 2022. With respect to a registrant providing initial Pay versus Performance disclosure in its 2023 proxy statement for three years (as permitted by Instruction 1 to Item 402(v) of Regulation S-K), may the registrant present the peer group total shareholder return for each of the three years using the 2022 peer group?
Answer: No. In this situation, the registrant should present the peer group total shareholder return for each year in the table using the peer group disclosed in its CD&A for such year. In the 2024 proxy statement, if the registrant uses the same peer group for 2023 as it used for 2022, the registrant should present its peer group total shareholder return for each of the years in the table using the 2023 peer group. If it changes the peer group in subsequent years, it must provide disclosure of the change in accordance with Regulation S-K Item 402(v)(2)(iv).
Question: Some stock and option awards allow for accelerated vesting if the holder of such awards becomes retirement eligible. If retirement eligibility was the onlysole vesting condition, would this condition be considered satisfied for purposes of the Item 402(v) of Regulation S-K disclosures and calculation of executive compensation actually paid in the year that the holder becomes retirement eligible?
Answer: Yes. However, for awards with additional substantive conditions, in addition to if retirement eligibility, such as a market is not the sole vesting condition as described in Question 128D.16, those, other substantive conditions must also be considered in determining when an award has vested. Such conditions would include, but not be limited to, a market condition as described in Question 128D.16 or a condition that results in vesting upon the earlier of the holder’s actual retirement or the satisfaction of the requisite service period.
– Liz Dunshee