Accurately calculate the SEC’s new Item 402(v) pay vs. performance table and the corresponding analytics.
On August 25, 2022, the SEC released its long-awaited pay vs. performance disclosure rule. The new rule will apply to proxies covering fiscal years ending on or after December 16, 2022.
Item 402(v) requires companies to:
- Produce a new proxy table containing a new measure of compensation, compensation actually paid (CAP), which is predicated on interim fair value measurements of all outstanding unvested and in-period vesting awards
- Adopt the transition guidance, which requires performing retrospective valuations over a historical three-year period
- Provide a narrative or visual description of the relationship between compensation actually paid and four measures of performance: company TSR, peer group TSR, net income, and a company-selected measure (CSM)
- Provide an unranked list of the “most important financial measures” used to link CAP to company performance
We provide comprehensive support to help companies adopt the new rule and comply with its provisions on a recurring basis.
How We Help
We do the following to help you prepare for the requirement:
- Assist in the identification of equity awards subject to the PvP table, including running extracts from the stock plan administration system and tabulating the underlying data
- Perform interim fair value measurements for all equity awards, including options, TSR-based awards, and other performance equity, taking into account the specific timing and terms of each
- Automate the ongoing fair value measurement and TSR calculations
- Develop full table mock-ups to assist in your adoption and planning efforts
- Develop multiple renditions using graphical, narrative, and combination approaches of the “clear description” required of CAP to company TSR, net income, and the CSM, as well as between company TSR and peer TSR
- Collaborate with you to develop additional analytics either for internal analysis purposes or supplemental disclosure
- Support buildout of the footnote components to the disclosure in collaboration with legal counsel
- Provide other training, guidance, and analysis to assist with the initial adoption and ongoing compliance with this SEC rule