Lower Disclosure, Higher Stakes? Rethinking Executive Compensation Communications

Jake: We continue our annual Top Five series with a look at the potentially changing landscape for executive compensation disclosure. Mark and Aalap are joined by managing directors Deb Lifshey and Sharon Podstupka, who bring complimentary perspectives to the discussion.

Deb advises clients on the legal, regulatory, and governance dimensions of executive compensation, while Sharon specializes in how companies communicate compensation decisions to shareholders, particularly through the proxy statement and CD&A. Together, they discuss what proposed SEC changes could mean for compensation committees, why reduced disclosure requirements may not translate into reduced investor expectations, and how companies can use this period of uncertainty to think more strategically about what they communicate, what they may eventually simplify, and how they preserve the governance credibility they have built with shareholders. Let's listen in.

Aalap: Deb and Sharon, really excited for you to be here and to talk with us on the podcast. Appreciate the time.

Sharon: Well, thanks for having us back. It's exciting. It's an exciting time.

Deb: Right. There's a lot of moving parts and pieces on this one, so we're excited to flesh it out and talk about what the potential implications are.

Mark: Yeah, so Deb, to pick up on this, thanks for both of you being back with us. It was a great podcast last time; I'm looking forward to a really interesting discussion. But gosh, there's so much noise out there around what's happening with respect to disclosure. Could you just get us up to speed on where we sit today, mid-September?

Deb: Right. So, it's a little confusing because there's really three big balls in the air. There were two proposals made by the SEC in May, open to comment. Both of them closed in July. We still don't have final rules for those two. 

The third one is on the complete rewrite of Item 402, which is executive compensation. We still don't have any proposal on that. It's scheduled, it's in process now, it's on the regulatory agenda. That will be released sometime, apparently, in October. And that will hit the bigger question of how all of the compensation rules apply to all of the companies, what's being scaled back, and what's changed.

But right now, today, we do have some proposals I wanted to quickly go over. One is a little bit more relevant to executive compensation than the other. The bigger one is the SEC's proposal to reduce the number of filing statuses. And in that reduction, it changes the landscape for executive compensation rules. Under that proposal, you would either be a large accelerated filer or a non-accelerated filer, or an NAF, as people are calling it. A large accelerated filer is when you have at least $2 billion of public float. And everything else is a non-accelerated filer.

According to the SEC, about 81% of the companies would then be non-accelerated filers. And why does that matter? Because under this proposal, non-accelerated filers would not be required to have mandatory say-on-pay, say-on-frequency, or say-on-golden parachute. There would be no required structured CD&A. The number of named executive officers would go from five to three. The number of years reported in the summary compensation table would go from three to two. It would completely eliminate CEO pay ratio, pay-versus-performance, risk disclosure, and the compensation committee report. And it would eliminate the requirement to disclose a number of tables, including the grants table that supports the summary compensation table, the option exercise and stock vested table, pension, and non-qualified deferred compensation. That's a lot. So, 81% of filers would not be required to do any of those executive compensation disclosures.

The second proposal, a little bit less relevant, but it would require companies instead of doing quarterly reporting they would have the option to do semiannual reporting. So that's sort of the landscape of where we are today. And, of course, again, we're waiting for this overarching reform on Item 402, which people were talking about in the summer of 2025. And in that discussion, the SEC was really focused on elimination of pay-versus-performance, some sort of revamp on the perquisite disclosure and compensation tables, and elimination of some things or reduction of the CEO pay ratio.

But we have nothing on that. We're anxiously awaiting to hear because that would apply to all companies, including the large companies. So that's where we are today.

Mark: Yeah, so there's an awful lot there, but isn't that all good? I mean, reduced disclosure means there's less compliance. That sounds like a good thing. Even though we might be waiting and there might be noise around it, but gosh, that sounds like a good thing.

Deb: It's good because there might be less produced from that perspective. However, and Sharon and I have talked about this a lot, what does that actually mean? Because investors will still be looking for these items that they've been used to seeing for the better part of two decades. Sharon, what are you hearing as you talk about communication with your clients?

Sharon: I think that's exactly right. I think there's two ways to think about this. There's the compliance element. And reducing some of these really burdensome, compliance exercise, related activities will provide a ton of relief to lots of companies. But I think, at the same time, there's the part of this that has grown over the last 15 years, which is this communicating-with-investors element to it. And investors have come to expect robust narrative around executive comp to make sure that they understand how committees are making decisions about paying their top executives, and what their line of sight is, and how they're creating long-term shareholder value, or those links to long-term shareholder value. So, I don't think that you can just say, "Okay, great, let's just blow up the exec comp disclosure completely and focus on the other parts of the proxy statement."

Aalap: Right, but Sharon, I mean, investors, management teams, I think everyone over the past few years has come to a common understanding that disclosures have become maybe a bit too long and complicated. What's the path forward in terms of how you reconcile that particular view versus making sure you have the appropriate information to make decisions?

Sharon: I think it's going back to your strategy that you've been using all along, which is knowing your investor base, understanding what's important to them, and asking those questions, right? Like, what have we been communicating over the last X number of years and how important has that been to our investor relationships? So, if you think about the CD&A narrative as your story, what are the most important things to keep? And, as of right now, September 2026—I mean we might have to go back and re-record this next week, depending upon what we learn—it really is that business-as-usual approach to making sure that you're explaining your executive compensation philosophy, how the decision-making process is sound, good governance features, and making sure that it's clear that you're setting robust goals that are driving long-term shareholder value. And you can't get that from a table, Aalap, right?

Aalap: No, you definitely can't. But I guess the question is that, should companies be taking this as an opportunity, obviously not to necessarily disclose less, but to disclose more effectively, if you will?

Sharon: Absolutely. I think there is an opportunity to step back and think about what are the most focused parts of your story and where do you need to lean in, depending upon the year, and your performance, and where you stand with your investors. But just like it is today, it requires you to have a message framework and a strategy. And that doesn't change regardless of what happens to the rules.

Aalap: And Deb, how about this concept, the vast majority of shareholders have supported annual say-on-pay. So, when we think about this in relation to that, do companies need to take that into account when they're trying to determine if they're going to take advantage of the reduced disclosure?

Deb: I mean, I think so. And I think the answer to many of these questions is, it depends, right? It depends on who your shareholder base is. If we look at the opinion of ISS and Glass Lewis, the proxy advisory services, ISS has already put it out there in their policy survey that they think that say-on-pay is important. And without say-on-pay their only alternative if they're dissatisfied with a compensation program is to go back to voting against directors. So that is definitely something to consider.

I know that Glass Lewis has submitted a comment letter to the SEC saying that they think say-on-pay is such a good idea and having to escalate to director elections to vote against compensation programs is really unnecessary. So, the proxy advisors definitely have a view on this, and companies will have to think about whether or not they want to pose that kind of risk to a director or compensation committee member specifically not being reelected.

Mark: I know there are some investor expectations that we're going to have to continue to meet, whether it is an expectation that say-on-pay is every year, or sometimes we have the committee pay, sometimes we have the committee chair letter, where the chair will explain why certain actions are taken. Sharon, don't you think that irrespective of what the SEC says, investors will expect these things?

Sharon: Absolutely. I think that over the years investors, and even other stakeholders, who are reading these proxy statements have developed pretty strong expectations about the information they need to evaluate compensation decisions and make sure that the board, the comp committee, is really exercising proper oversight of these programs.

Deb and I have been talking a lot about this term—we're calling it "governance capital." And what that governance capital has been over time is that committees and companies have been demonstrating, with their investors, this oversight by communicating in a certain way, with a regular cadence, and responding thoughtfully to things over time, not just in their CD&A but through shareholder engagement and all of those good things that we've come to know and love.

And so, I think, yeah, you have to think about your investors, what they've told you they really like about your disclosure, and what risk or unintended consequences there might be by stripping them back or getting rid of them. I think compensation committee letters, that's a good example, Mark. Q&A with a committee chair in some narratives is another really good example. There's been a lot of debate around things like realized or realizable pay narratives that some companies have come to really rely on to demonstrate their pay-for-performance alignment, and investors really like that for certain companies. So that's another example that you could think about.

Deb: And on that, if I could just add, this is sort of an interesting parallel. We're having this discussion about what's required versus what would be expected. If we go back to the original rules and what's required, there is no requirement for an executive summary. That sort of grew out of these very long, voluminous CD&As and trying to get the point up front. And now, today, while it is not a requirement, almost every proxy has an executive summary, and that's really what investors are looking for.

Sharon: I think that's right. You can think about the other piece too, right? It's become table stakes, which is the governance features, the what we do and what we don't do. Let's make sure it's clear and crisp and that our investors can get a good look at how our oversight works. And so, not required, but I would say it's a best practice. Why would you strip that away if your investors really value it?

Aalap: I completely hear what both of you are saying. And what about these companies that actually do want to take advantage of these new rules? Should they have some sort of standard methodology or practice of what they should minimize and then what they should emphasize?

Deb: Well, let me take this from a perspective of what is important and what do people care about. There are some low-hanging fruit of things that can be eliminated if they're not mandatory. Some people may disagree, but CEO pay ratio people don't really pay attention, and I don't think have paid attention for quite some time outside of some shock value at the very beginning. The very voluminous and complicated pay-versus-performance tables might be eliminated. Now, the narrative around them is still significant, but the actual table disclosure could easily save a lot of time and money. Some of the risk disclosure, it's really become boilerplate that the company hasn't taken excessive risk in compensation to jeopardize the company. I'm not sure how much value that adds. So, there are some things like that, that are sort of low-hanging fruit that I don't think people have been paying attention to for a very long time.

Aalap: Got it. Very helpful.

Mark: So what happens from here? Obviously, we don't have the final rules yet, and hopefully they will come out soon, but what should we be talking to our clients about?

Deb: I think that, from a drafting perspective, as Sharon mentioned earlier, we're in mid-September. I would say it's business as usual, draft as if nothing were changing. But at the same time, you can have an alternative draft running in parallel that sort of strikes out a lot of the verbiage, tables, or unnecessary items that you think don't support your position to investors and are simply regulatory in nature. And so, you can have those two running in parallel until we get a little bit more clarity around what is required and what is not.

Aalap: Sharon, what do you think?

Sharon: I would echo what Deb says, first and foremost, around business as usual. I think you guys know, and maybe our listeners know at this point, it is mid-September, and that means the end of the year is right around the corner. And so, committees should be going into their fall meetings thinking about what their 2026 disclosure story is. And management teams should be starting their CD&A planning process now, so there's a clear understanding of who's doing what between now and filing. Even if we get some finalized rules in the meantime, I think staying the course and making sure that you have a plan and you understand where some of the pitfalls might be if you're a 2026 story leading up to a 2027 say-on-pay vote is still really important. And keeping that focus, even though all of this noise can be very distracting.

Aalap: What a difficult thing to manage right now. I think another thing that ends up complicating things is that you have a good amount of institutional shareholders developing their own proprietary voting systems. Do you think that if a company were to jettison say-on-pay, those institutional shareholders would end up having only the ability to vote against directors if they didn't like something in the program?

Deb: All we have is history, right? We know how ISS used to treat voting almost two decades ago without say-on-pay, which is they would look to comp committee members, and they would look to comp committee chairs, and even the full board of non-comp committee members. And sometimes, I think they had a structure where they would have one year to correct, and if they didn't correct in that one year, you'd get a fail in the second year. So, there's all sorts of different approaches for investor feedback in the absence of say-on-pay. We just don't know what any of these proprietary models will follow.

Aalap: Sharon and Deb, really appreciate you taking the time today to speak with us. Clearly, lots of things are in flux. We're likely going to have to have both of you on again once the rules get finalized. But you've given us a lot to think about. I really appreciate the time.

Deb: Thank you. Always good to be here.

Sharon: Always. We can't wait to have an update.

Mark: I keep thinking it's going to drop every Friday, so let's see what happens.

Aalap: All right, thank you.

Mark: Thank you very much.

Jake: Our thanks to Deb and Sharon for helping us understand how to prepare for, and interpret, the potentially changing landscape for executive compensation disclosure. And by the way, when the final rules are released by the SEC, we plan to bring them back to break it all down for you, so stay tuned.

In our next episode, for now, we're going to explore whether it may be time to re-examine the long-term incentive mix and seek an answer to the question: are stock options back?

Until then, you can find all of our Unscripted episodes on Spotify, Apple Podcasts, pearlmeyer.com, or wherever you get your podcasts. Thanks as always for listening, and we'll meet you back here next week.