On April 29, 2015, the Securities and Exchange Commission (the SEC) proposed for comment new “pay versus performance” rules that would require public company registrants to disclose the relationship between executive compensation and financial performance. The proposed rules would amend Item 402 of Regulation S-K to implement an additional requirement mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) relating to executive compensation. In her public remarks, Chair White stated that the proposed rules “would give shareholders a new metric for assessing a company’s executive compensation relative to its financial performance” and “may help inform shareholders when voting in an election of directors and in connection with a shareholder’s advisory vote on executive compensation.” Chair White also stressed that the proposal is designed to permit shareholders to compare the pay versus performance disclosure across peer companies. In a split 3-to-2 vote in favor of the proposed regulations, dissenting Commissioners Gallagher and Piwowar suggested in their remarks that they did not support the rulemaking proposal because they believe other pending SEC initiatives are more pressing and should be addressed before pay versus performance, and because they view the approach taken in the proposed rules is prescriptive rather than providing issuers with flexibility in the measures used and information shown.

As proposed, the rules would implement new Item 402(v) of Regulation S-K to require issuers to disclose in a proxy or information statement (1) the relationship between “executive compensation actually paid” to the registrant’s named executive officers (NEOs) and the cumulative total shareholder return (TSR) of the registrant, and (2) the relationship between the registrant’s TSR and the TSR of a peer group chosen by the registrant. The information would be disclosed in a new table in a registrant’s proxy statement, a sample of which is set forth below.

*“PEO” means the principal executive officer.

Under the proposed rules, registrants would calculate and disclose a new measure of executive compensation called “executive pay actually paid.” This would be based on total compensation as disclosed in the registrant’s Summary Compensation Table, modified to exclude the present value of benefits under pension plans not attributable to the applicable year of service, and to include the value of equity awards at vesting (rather than when granted). Executive compensation actually paid would be reported for the CEO and for the remaining NEOs as an average. Registrants also would be required to measure and disclose financial performance using their calculated TSR, as defined in Item 201(e) of Regulation S-K, which is the same measure of total shareholder return presented in the performance graph included in the registrant’s proxy statement. Registrants would present both their own TSR and TSR for their selected peer group. Using the values presented in the table, registrants also would be required to describe, either as a narrative, a graphic or a combination of these two presentations, the relationship between executive compensation actually paid and the registrant’s TSR, and a comparison of the registrant’s TSR with the peer group TSR for each year that information is required to be presented. All of the data included in the table is required to be tagged by the registrant in interactive data form (XBRL) to promote comparability among the companies and their information. Issuers also have the flexibility to supplement this disclosure with other performance information that reflects a registrant’s specific situation and history.

Under the proposed regulations, this information would be required to be presented for the last five fiscal years, except that smaller reporting companies would only be required to present the information for the last three fiscal years. The rules provide a phase-in period for all registrants, as well as for newly public issuers. Emerging growth companies, registered investment companies and foreign private issuers are not subject to the proposed new reporting requirements. The proposed rules will be open for comment for 60 days following publication of the rules in the federal register.