Question

Answer

(1) Who must comply?

All reporting companies except foreign private issuers, registered investment companies, and emerging growth companies. Smaller reporting companies have reduced disclosure obligations (see Q&A #10).

(2) When must a subject reporting company comply?

Any company with a calendar year fiscal year, must include the new disclosure in next year’s proxy statement (companies must begin complying in proxy and information statements that include executive compensation disclosure for fiscal years ending on or after December 16, 2022).

(3) What must reporting companies disclose under this new Regulation S-K Item 402(v)?

• Pay Versus Performance Table. A table that discloses specified executive compensation and financial performance measures for the five most recently completed fiscal years, subject to transition relief descried in Q&A #11 below.

• Pay Versus Performance Description. A clear description of (i) the relationships between the executive compensation actually paid and each of the financial performance measures presented in the table, including a financial performance measure designated as the “Company-Selected Measure,” as further discussed below, and (ii) the relationship between the company’s total shareholder return (“TSR”) and the weighted TSR of a selected peer group.

• Performance Measures List. A table of at least three (or all, if fewer than three) and up to seven of the most important financial performance measures used by the company to link executive compensation actually paid to company performance for the most recently completed fiscal year. The Company-Selected Measure must be from this list. “Financial performance measures” means measures that are determined and presented in accordance with the accounting principles used in preparing the company’s financial statements, any measures that are derived wholly or in part from such measures, and stock price and TSR. A company may include in the list non-financial performance measures (i.e., performance measures other than those that fall within the definition of financial performance measures) used by the company to link compensation actually paid, for the most recently completed fiscal year, to company performance, if the company determines that such measures are among its three to seven most important performance measures.

   

• Inline XBRL. Use Inline XBRL to tag the pay versus performance disclosure.

(4) What information must be included in the Pay Versus Performance Table?

For each of the previous five fiscal years, the table must include the following information:

• the total compensation of the company's principal executive officer ("PEO") as disclosed in the Summary Compensation Table;

• the “compensation actually paid” to the PEO (see Q&A #5 below);

• the average of the total compensation of the company's other named executive officers ("NEOs") as disclosed in the Summary Compensation Table;
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• the average of the “compensation actually paid” to the other NEOs, collectively (see Q&A #5 below);

• TSR of the company;

• weighted TSR of the company’s peer group;

• the company’s net income;

• an amount attributable to an additional financial performance measure, designated as the “Company-Selected Measure,” which in the company’s assessment represents the most important financial performance measure (not otherwise disclosed in the table) used by the company to link compensation actually paid to company performance; and
• any additional measures the company elects to provide.

(5) How is “compensation actually paid” to the PEO and the NEOs calculated for purposes of the Pay Versus Performance Table?

It is calculated as the total compensation reported in the Summary Compensation Table adjusted as discussed below.

• Equity Awards. The value of all stock awards and all option awards are calculated as follows (rather than based on aggregate grant date fair value):
  • the fair value as of the end of the covered fiscal year of all awards granted during the covered fiscal year that are outstanding and unvested as of the end of the covered fiscal year;

   

  • for awards that are granted and vest in the same year, the fair value as of the vesting date;

   

  • for awards granted in prior fiscal years that vest in the covered fiscal year, the change in fair value as of the vesting date (from the end of the prior fiscal year);

   

  • for any awards granted in any prior fiscal year that are forfeited during the covered fiscal year, a reduction for the amount equal to the fair value at the end of the prior fiscal year; and

   

  • the dollar value of any dividends or other earnings paid on stock or option awards in the covered fiscal year prior to the vesting date that are not otherwise included in the total compensation for the covered fiscal year.

   

• Defined Benefit Plans and Actuarial Pension Plans. This figure is (a) reduced by the change in the present value of the accumulated benefit under all defined benefit and actuarial pension plans reported in the Summary Compensation Table for an executive and (b) increased by the aggregate of (i) the service cost for all such plans calculated as the actuarial present value of the executive's benefit under all such plans attributable to services rendered during the covered fiscal year and (ii) the prior service cost, calculated as the entire cost of benefits granted (or credit for benefits reduced) in a plan amendment during the covered fiscal year that are attributed by the benefit formula to services rendered in periods prior to the amendment, in each case, calculated using the same methodology as used for the company’s financial statements under U.S. GAAP.

• the change in fair value during the covered fiscal year of any awards granted in any prior fiscal year that are outstanding and unvested as of the end of the covered fiscal year;

(6) How is TSR of the reporting company and peer group calculated for purposes of the Pay Versus Performance Table?

Each is calculated in the same manner as for the stock performance graph provided in the company’s annual report for the relevant fiscal years being reported. TSR amounts must be calculated and disclosed based on an initial fixed investment of one hundred dollars.

For the peer group calculation, the returns of each component issuer of the peer group must be weighted according to the respective company’s stock market capitalization at the beginning of each period for which a return is disclosed.

(7) What will be the reporting company’s “peer group” for purposes of the Pay Versus Performance Table?

A company can choose to use either the peer group used by the company for purposes of the stock performance graph provided in the company’s annual report or, if applicable, the peer group that the company uses for the compensation discussion and analysis for the company’s executive compensation disclosure.

(8) Is any additional information required to be disclosed in the footnotes of the Pay Versus Performance Table?

• If the peer group is not a published industry or line-of-business index, the identity of the issuers composing the group.

• If the company selects or otherwise uses a different peer group from the peer group used by it for the immediately preceding fiscal year, the reason for this change and a comparison of the company’s TSR with that of both the newly selected peer group and the peer group used in the immediately preceding fiscal year.

• For each amount disclosed for compensation actually paid, each of the amounts deducted and added as adjustments for defined benefit plans, pensions funds and equity awards.

• For the value of equity awards added, any assumption made in the valuation that differs materially from those disclosed as of the grant date of such equity awards.

• To the extent a Company-Selected Measure or any additional measures the company elects to provide are not financial measures under U.S. GAAP, how the measures are calculated from the company’s audited financial statements.

(9) What is required for the Pay Versus Performance Description?

In a graphic or narrative form (or a combination), the company must provide the following, in each case, over the five most recently completed fiscal years:

• A description of the relationships between (i) the executive compensation actually paid to the PEO and (ii) the average of the executive compensation actually paid to the remaining NEOs, to each of the following measures:
  • TSR of the company;

   

  • onet income of the company;

   

  • the Company-Selected Measure; and

   

  • any additional measures the company elects to provide in the Pay Versus Performance Table.

     

• A description of the relationship between (a) the TSR of the company and (b) weighted TSR of the company’s peer group.

(10) Are smaller reporting companies subject to reduced disclosure obligations?

Yes. A company that qualifies as a smaller reporting company is:

• required to provide the required information for three years, instead of five years, and may provide the disclosure for two years, instead of three, in the first filing;

• not required to include disclosure with respect to the peer group weighted TSR;

• not required to include Company-Selected Measure disclosure; and

• not required to include the Performance Measures List disclosure.

(11) Is any transition relief available the first time a reporting company provides the Item 402(v) disclosure?

The first time a company provides the required disclosure, it need only provide the disclosure for a three-year period, and it would then be required to provide disclosure for an additional year in each of the two subsequent annual filings in which this disclosure is required.