The Securities and Exchange Commission is taking initial steps to consider overhauling rules governing disclosures of executive compensation, including banker pay and bonus clawbacks.
The current compensation disclosures are “a Frankenstein patchwork of rules” thanks to myriad updates over the past three decades, SEC Chairman Paul Atkins said in prepared remarks Thursday for a roundtable event on the topic in Washington. “The outcome of our rules is not effective when companies require highly specialized lawyers and compensation consultants to prepare disclosure that the reasonable investor struggles to understand.”
Pay-versus-performance disclosures may be particularly ripe for change.
In a statement last month announcing the roundtable, Atkins said he had heard frequent industry criticism about how to calculate the required compensation disclosures since the rules were adopted in 2022. He asked SEC staff to examine how to reduce compliance burdens with the rules “while continuing to provide investors with material information,” Atkins said at the time.
The rules require firms to disclose their executives’ compensation and compare it with the companies’ financial performance over a five-year period. That data is also compared with the financial performance of similar types of companies over the same span. The goal is to help investors make better decisions when voting on executive pay, bonuses and other perks.
Other rules up for potential review include those allowing firms to claw back bonus pay from current or former executives if companies have to make significant accounting restatements.
Even if there’s consensus on whether to modify compensation rules, those changes could be months or years in the making. The SEC’s process requires two rounds of public comment, and the decision to hold Thursday’s event indicates that it could take even longer. The roundtable features speakers from Exxon Mobil Corp., BlackRock Inc. and the California Public Employees’ Retirement System.
The event is, in part, a performative response to Republican and industry complaints levied against prior SEC Chair Gary Gensler, who sometimes moved rulemakings through the agency at breakneck speed. Many of those rules were challenged in court, with industry groups claiming they weren’t given adequate time to weigh in on substantive changes between proposed and final rules.
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