Accurately calculate pay vs. performance and determine any supplementary analytics needed to clarify your proxy story.
The SEC’s proposed guidance on pay vs. performance disclosures has two main components. One is the total shareholder return (TSR) calculations for yourself and your peers. The other is compensation “actually paid.”
To begin with, the TSR calculations are almost surely different from other TSR calculations you perform, and compensation actually paid requires calculating the fair value of equity awards on the vesting date. For options, this can mean using different valuation assumptions (or even a different model entirely) than those used for the grant date valuation.
How We Help
We do the following to help you prepare for the requirement:
- Estimate fair value of your equity awards at vest for each disclosed year, taking into account the specific timing and terms of each tranche earned
- Develop a robust methodology for valuing options on the vesting date, since Black-Scholes may not be a valid model
- Automate the ongoing calculation of your TSR relative to the TSRs of your peer group in accordance with the unique requirements of the SEC rule
- Collaborate with you to determine whether a supplementary disclosure is appropriate, such as using an alternative performance metric or adjusted performance period