On August 25th, the SEC released the long-awaited final rule that implements the requirement in the Dodd-Frank Act that proxy statements contain a “clear description” of “information that shows the relationship between executive compensation actually paid and the financial performance of the issuer, taking into account any change in the value of the stock.” While no changes are being made to the current Summary Compensation Table (SCT) requirements, the new PVP Rule will require recalculation of various SCT inputs and will result in:
The creation of a new PVP Table,
Many companies having to make hundreds of new calculations for the new table to replace the grant date stock values in the SCT with new stock values for the NEOs,
Replacement of the pension cost number in the SCT with a new number representing service cost and the prior service cost for amendments during the year,
Companies having to provide a clear description of the relationship between executive compensation, as newly defined, and various financial metrics, and
Companies having to select its 3-7 most important financial metrics used to “link” executive compensation to performance and to provide financial information with respect to the most important measure.
The new rule is effective for proxy statements for fiscal years ending on or after December 16, 2022.