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The Securities and Exchange Commission (SEC) released additional guidance on Feb. 10 to the new pay-versus-performance disclosure rules, which sheds additional light on how organizations should proceed with the executive compensation reporting requirements.  

The new guidance provides some much-needed points of clarification for companies, analysts note, but falls short in spelling out how to address the nuances of the most arduous part of the disclosure—computing compensation actually paid (CAP).

For background, under the new rules, US public companies must provide a new table in their annual proxy filings that contains executive compensation and financial performance measures covering a period of up to five years. Companies must file the new pay-versus-performance information for fiscal years 2020 through 2022 beginning this year. 

Deborah Lifshey, a managing director for compensation consultancy Pearl Meyer, said calculating CAP has been the most arduous part of the disclosure in year one. She thinks the recent guidance failed to adequately address this critical component. 

“Unfortunately, the SEC guidance lacked some specifics that were needed to do these valuations as well as the footnote disclosure that must accompany the reconciliation,” Lifshey said. “For example, clarification was needed as to how to account for dividends as well as awards that accelerate upon retirement.” 

To the latter point, Lifshey said that while the guidance suggested that aggregating reconciliation was not permissible, it remains unclear how granular the reconciliation from the summary compensation table to compensation actually paid must be. 

Thus, she said, the question remains as to whether this should be broken down by awards, tranches, or other factors. 

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