7 Pitfalls to Avoid When Preparing Proxy Compensation Tables

Proxy season brings a host of technical and operational challenges to disclosure preparations. For internal HR and legal teams, one of those challenges is to build the compensation tables. Although the tables are just one component of the proxy statement, they play an important role in advancing the proxy’s dual objectives of marketing the company’s story and managing legal risk.

Here are some of the most significant pitfalls of preparing proxy tables, and why meticulous execution is essential.

1. Dropped Handoffs

Different tables are often owned by different teams. In a typical scenario:

• HR takes the lead on the core tables
• Legal drives the Potential Payments Upon Termination or Change in Control table
• An external provider handles the Pay vs. Performance (PvP) table

Additionally, different data elements are sourced by different teams—think payroll departments providing cash compensation data and stock plan administrators supplying the equity data.

This creates multiple flavors of handoff risk, including:

• Information decay. The risk is there because some of the proxy tables build on one another, meaning calculation decisions made for one table must be carried forward into related tables.

• Information mixups. Suppose the PvP table uses the legal vesting date but the Stock Vested table uses the share release date. If those two dates differ, you’ve got a problem.

• Failure to make targeted variations in treatment. An example of this is using the same valuation for unvested market-based performance stock units between the Outstanding Equity Awards and PvP tables.

These problems become very tough to catch and can compound over time, especially when team members turn over and documentation is sparse.

The proxy preparation process needs legal’s expertise in Reg S-K (including the sea of C&DIs and experience from SEC comment letters and other informal guidance). It also needs HR to craft the broader proxy narrative and fuse incentive design to strategy and shareholder engagement. So while we call this a handoff problem, we don’t recommend doing away with handoffs. Instead, the winning strategy is to bring in accounting to work with both legal and HR. (More on this later.)

To mitigate discontinuity and handoff risks, we manage the full suite of proxy tables for most of our clients through a single, integrated process. By automating data flows and centralizing key decision points, we ensure that calculation logic is applied consistently where appropriate—and independently where required—while maintaining full transparency and auditability.

2. Manual Excel Workbooks

Many companies rely on Excel to develop their proxy tables. The Excel workbooks tend to be complex to begin with—think hard-coded inputs, deeply nested formulas, and frequently opaque logic. But over time, they can become a black box as documentation falls by the wayside and institutional knowledge consolidates in the mind of a single individual.

This creates serious continuity risk. When the person who built the workbook moves on, the incoming team may struggle to understand the underlying calculations or trust that the outputs are accurate. Meanwhile, small errors can propagate across tables—especially when the same file feeds multiple disclosures—and it can be difficult to pinpoint the source.

Moreover, Excel-driven processes can mire HR and legal teams in a “doer” role when they should be taking on a “reviewer” role. The quality and rigor of the review effort suffers when the people running the calculations are the same ones who review them. Although the internal audit function can help, their limited subject matter expertise with proxy reporting dampens their ability to catch subtle risks and issues.

For years, the finance function has been on a quest to automate core processes, reduce key-person risk, and proactively invest in controls. It’s time to bring these best practices to the proxy. Doing so can boost confidence in the data and allow internal teams to focus their efforts where they add the most value.

3. Accounting as an Afterthought

Most of the compensation tables are grounded in ASC 718, the accounting standard that governs the treatment of stock-based compensation under US GAAP.

However, there are twists, because the composition of the proxy is much different from the income statement, which houses most of the ASC 718 outputs. For example:

• Tables like the SCT and PvP require the use of fair value measurement techniques. But the SCT is a carbon copy of the grant-date measurement, whereas the PvP table reflects a mark-to-market valuation on in-flight awards
• In keeping with the ASC 718 framework, performance and market conditions are reported differently, but special disclosure is also required in certain table footnotes
• Although there’s no conceptual breakdown, the effect of dividend protection is handled very differently between the SCT and the PvP table
• The incremental cost framework underlying award modifications is leveraged in the proxy tables, but there are important differences in how certain types of modifications are reflected (primarily Type III varieties)

Yet when it comes to developing the proxy, accounting often has a limited role. This is a problem because the nuanced applications of the ASC 718 framework in the proxy require not only command of the accounting standard itself but also how it’s deployed across the various proxy tables.

Errors in proxy disclosure can translate into internal controls weaknesses or deficiencies, not to mention SEC comment letters. They can even be weaponized by the plaintiffs’ bar in shareholder litigation. Outside these more severe scenarios, errors and misunderstandings can leave investors scratching their heads, unduly giving a negative say-on-pay vote, or going down rabbit holes during engagement sessions.

As experts in ASC 718, we draw the connections between the appropriate accounting principles and the proxy table rules. Whether from an external vendor like us or the internal technical accounting team, a strong accounting review of the calculations is a must.

4. Stock Administration Data That’s Not Ready for the Proxy

While stock administration systems generally excel at tracking awards and delivering a pristine participant experience, they aren’t built to produce proxy-ready disclosures. As a result, the data often requires significant adjustments to comply with the nuances of SEC disclosure standards. For instance:

• Vesting dates may need to be modified to reflect share vesting dates, not simply administrative settlement schedules

• Performance award share counts may need to incorporate target-to-actual multipliers or embedded multipliers need to be backed out. This depends on the specific proxy table being prepared and the flavor of performance metric

• If modifications (e.g., accelerations) aren’t flagged in a way that’s readily usable for proxy disclosures, the incremental cost will need to be separately computed and the fact pattern behind the modification will govern which PvP swim lane in the compensation actually paid (CAP) breakout table it makes it into

In addition, customizations made for participant communications or operational efficiency often introduce further discrepancies that must be corrected before finalizing the proxy disclosure. This is why we take the view that it’s more important to understand the underlying executive compensation activity reflected by the raw proxy data first. Then we deploy a separate, automated process to develop the proxy tables pursuant to each Item 402 requirement.

Identifying potential inconsistencies is only the beginning. The harder challenge is uncovering the hidden assumptions and treatments embedded in raw stock administration exports. Systems don’t warn you when vesting dates, share counts, or performance outcomes have been processed in ways that conflict with SEC disclosure rules. Without a structured, automated, and documented process—and without someone who truly understands how grant designs, vesting mechanics, and forfeitures are recorded in the system—errors can easily pass unnoticed and compound year over year.

5. Application of Judgment on Performance Awards

Performance-based equity awards are one of the riskiest aspects of proxy preparation. Some of the reasons are that:

• Different tables treat performance award payouts differently (some based on expected outcomes, others based on actual results)
• Footnotes may require disclosure of the rationale for assumed outcomes or detailed payout mechanics
• Market-based conditions (e.g., TSR goals) introduce a fair value component that’s distinct from performance-based metrics (e.g., EBITDA)
• Multi-tranche awards or overlapping performance periods introduce valuation and interpretative challenges

While these risks most naturally relate to the SCT and the PvP table, they’re just as acute in the Potential Payments upon Termination or Change-in-Control (PPTCIC) table. Performance awards are particularly challenging because the payout mechanics depend on whether performance targets are deemed achieved at the time of termination, prorated for service, or accelerated based on plan terms or individual agreements. Accurately modeling these treatments demands a clear understanding of award design features, contractual language, and administrative practices, layered on top of the accounting and disclosure considerations already discussed.

Misinterpreting performance awards can lead to errors not just in disclosure but also in investor perception. The risk isn’t merely technical—it’s reputational, given the intense spotlight on performance awards and pay-for-performance throughout the proxy.

When companies outsource their proxy table development to us, we bring deep expertise at the intersection of ASC 718 accounting and SEC disclosure requirements, supported by an automated and documented process. Our objective is to ensure that performance awards are modeled, valued, and disclosed correctly across all relevant tables and footnotes. When the work is performed internally, we advise fostering close collaboration between the internal accounting team and the HR or legal leads responsible for proxy compliance to ensure that assumptions, interpretations, and disclosure treatments are applied consistently and accurately. 

6. Modifications (Especially Type III)

Type III modifications under ASC 718 involve changes that make vesting probable when it was previously improbable, triggering catch-up expense in the income statement. But proxy tables, including the SCT and the PvP table, don’t always align with this income statement impact.

Consider what happens when a performance award that’s supposed to be forfeited in a termination is suddenly revived due to a deal struck with the departing executive. If the stock price has declined since the grant date, the effect to the income statement could actually be more favorable than if the executive had remained with the company. In the proxy, however, the cost of the modified award is measured without any corresponding reversal of the prior reported grant value. Without offsetting the original grant date valuation, it appears as if the departing executive received a new grant in the year of departure.

As an even more practical matter, stock administration systems don’t flag when a modification has occurred. Neither do they explain the accounting treatment or indicate how the event should flow through the proxy tables. Modifications are embedded deep in the data and must be specifically identified, classified, and modeled based on the individual agreements, ASC 718 rules, and proxy table in question.

If these sorts of nuances aren’t understood and disclosed properly, major errors can emerge in the tables. Given the sensitivity associated with executive entry and exit, misstatement of modification implications can be consequential to investors and other external stakeholders. It takes a deep understanding of the incentive design activities, the accounting rules, and specific proxy reporting requirements to report on modifications accurately.

7. High-Research Proxy Disclosures

Certain disclosures are especially tricky because of the interpretive research they require. Here are some examples.

CEO Pay Ratio demands judgment and defensible methodologies in identifying the median employee and valuing broad-based compensation elements.

Potential Payments Upon Termination or Change-in-Control requires a careful review of individual executive agreements to determine entitlements like acceleration clauses, continuation rights, severance multiples, and the treatment of performance metrics—all of which vary by executive and agreement. These differences and mechanics can be very nuanced. For instance, proration can rely on elapsed months or actual days while the rules for including partial periods can vary based on plan terms or precedent agreements.

Dodd-Frank clawbacks require careful research and internal coordination to calculate the correct recovery amounts and then determine how and what to disclose. Under Item 402(w), if the company restated its financials, then a recovery analysis must be performed and disclosed in the proxy. If no recovery was deemed necessary, this needs to be discussed. If a recovery is necessary, then detailed disclosure is required regarding the amounts recovered, the individuals affected, and any amounts outstanding.

Equity award granting practices under Item 402(x) requires companies to analyze and disclose any awards granted in proximity to the release of material nonpublic information. This includes reviewing the timing of grants relative to earnings announcements or major corporate events, as well as describing any policies or procedures that govern grant timing practices. Even if no problematic timing occurred, companies must still affirmatively disclose their practices and provide a clear explanation to preempt investor concerns.

To sum it up, the work here is about reading and interpreting agreements, then making sure the math reflects the underlying award terms. That often involves multiple layers of judgment, cross-functional coordination, and documentation that must be carefully managed to ensure complete, defensible proxy reporting. High-research disclosure areas require both automation and, for explainability, a calculation playbook that highlights key assumptions along with the sources behind those assumptions.

Final Thoughts

Proxy table preparation sounds rote, but it isn’t. It’s a high-risk, high-visibility process that requires precision across accounting, legal, and HR domains. Each table brings unique technical requirements. The interdependencies between them create compounding risk when multiple stakeholders are involved.

Even so, cross-functional involvement is a positive because it brings the comparative strengths of each team to the table:

• Stock administration with the data
• HR with the award goals and proxy storytelling objectives
• Legal with the proxy disclosure rules
• Accounting with the technical ASC 718 principles underpinning so many of the tables

Outsourcing this work to specialists can help mitigate many of these risks. But what matters most is having a coordinated, technically rigorous approach—one that brings together accounting fluency, legal interpretation, and data transformation expertise.