The U.S. Securities and Exchange Commission (SEC) has proposed an overhaul of executive and director compensation disclosures under Item 402 of Regulation S-K, shifting toward requirements focused on material information. Executive disclosures would cover individuals serving as principal executive officer or principal financial officer, reducing coverage to two people in most cases rather than typically five or more under the standard rules. The proposal advances compensation reforms previously identified within the SEC’s broader review of public company reporting requirements.
Three new tables would replace the four primary compensation tables, separating compensation earned from compensation granted and tracking individual equity awards through their lifecycle. Earned compensation would include stock awards when vested and options when exercised, while granted awards would generally reflect target outcomes. Companies would still need to provide material information necessary to understand the tables, but would gain flexibility over presentation. Compensation Discussion and Analysis would address three required topics rather than seven, without the current list of 15 illustrative topics. The aggregate perquisite reporting threshold would rise from USD 10,000 to USD 150,000, with a tracking exclusion for fringe benefits treated as de minimis under U.S. tax law. Revised guidance would allow companies to determine reasonably and in good faith whether benefits are directly and integrally related to executive duties and therefore are not perquisites.
For pay versus performance reporting, total compensation earned would replace the separate Compensation Actually Paid calculation. Required performance measures would be limited to cumulative total shareholder return, with disclosure covering three years. Pay ratio calculations would identify the median employee only among U.S. full-time employees, once every five years rather than every three years. Certain clawback disclosures and annual report cover page check boxes would be removed, while the underlying compensation recovery process would remain unchanged. Director compensation disclosures would no longer require a prescribed table.