SEC Issues 10 More Pay Versus Performance Compliance & Disclosure Interpretations (C&DIs)

The Securities and Exchange Commission (SEC) has issued 10 more Compliance and Disclosure Interpretations (C&DI) relating to the new pay-versus-performance (PVP) rules rolled out last year. These new C&DIs, issued Sept. 27, complement the first batch of C&DIs issued in February 2023.

As Today’s General Counsel reported in April, the new SEC pay rules mark the most significant change in executive compensation disclosure in more than 15 years.

Skadden, Arps, Slate, Meagher & Flom LLP provided a rundown of the new C&DIs for companies will need to consider when making compliance preparations.  These C&DIs include further details related to instances of non-GAAP accounting, spin-offs, restructuring efforts, IPOs, stock option vesting and other situations.

One question posed in the C&DIs is whether awards granted in fiscal years prior to an equity restructuring, such as a spin-off, be included in the calculation of executive compensation actually paid? The SEC’s response is yes for all stock awards and option awards that are outstanding and unvested at the beginning of the covered fiscal year. The regulator goes on to state that all stock awards and option awards granted to executives during the covered fiscal year, including awards modified in connection through transactions or restructurings, should also be included.

Another question regards whether awards that did not meet vesting conditions during the year because market performance conditions were not met should enter into compensation calculations to comply with the new rules. The SEC’s response was no. “Awards that remain outstanding and have not yet vested, because, for example, performance or market conditions were not met in an eligible year, are not considered to have failed to meet the applicable vesting conditions for the purpose of [the new rules],” the regulator said.