Source: Securities and Exchange Commission
Good afternoon. I’m sorry that I can’t be with you for today’s roundtables, which I’m certain will generate some thought-provoking ideas and conversations.
Executive compensation never fails to be a hot topic. It is an issue consistently and prominently invoked in discussions of corporate responsibility and governance. And, it stands out among those topics that marry capital formation to shareholder rights and engagement.
A Brief History
The legal history on executive compensation runs deep. Indeed, disclosure of director and officer compensation was first required of issuers in the Securities Act of 1933.[1] Fast forward to more modern times . . . as Chairman Atkins highlighted in his public statement calling for today’s roundtable, in 1992, the Commission issued a new compensation disclosure rule, which sought to institute digestible and tabular formats. The Commission made further amendments to refine those tables in 2006. Recognizing the “widespread support for enhanced disclosures,” then-Commissioner Atkins noted that “[s]tockholders as the owners of the corporation ought to have a window into the compensation decisions made by the boards of directors that represent their interests.”[2]
Congress has also, in more recent times, weighed in on the discourse relating to executive compensation. In the Emergency Economic Stabilization Act of 2008,[3] and again in the Dodd-Frank Wall Street Report and Consumer Protection Act,[4] Congress observed that executive compensation practices encouraged risk taking in a manner that exacerbated many of the problems underlying the 2008 financial crisis, and called for comprehensive reform.[5] In particular, legislation required (among other things):
- Shareholder advisory votes on executive compensation and golden parachutes (“say-on-pay”);
- Enhanced independence for board compensation committees and their advisers;
- Disclosures about the compensation actually paid to executives compared to the issuer’s financial performance, and pay ratios between the median annual total compensation of all employees to the annual total compensation of the CEO; and
- Policies regarding the recovery by the issuer of erroneously awarded compensation.[6]
Since that time, the Commission has promulgated rules aimed at effectively implementing these provisions. For example, in 2022 the Commission implemented “pay versus performance” rules,[7] and rules controlling listing standards for clawback policies.[8]
The disclosure regime set up by both rule and statute is multi-faceted. It is each principles-based and prescriptive. For example, the CD&A discussion encourages companies to a provide meaningful narrative to shareholders about the objectives and philosophy driving their compensation decisions as to all named executive officers. Issuers also have the ability to include non-financial metrics that the company has deemed important in setting incentive-based pay in its pay-versus-performance tables. On the other hand, more prescriptively, issuers must disclose specific quantitative data in the Summary Compensation and other tables about both base and incentive compensation, calculated in a manner consistent with our rules.
Principles
Throughout this long history, again and again, certain deeply rooted principles reveal themselves.
It is a fundamental shareholder right – as the owner of a company’s equity – to obtain full and fair disclosure around the compensation of corporate executives. That disclosure should be easy to understand and analyze; and it should be granular and consistent to allow for comparability across peer companies and filings. It should provide critical information to shareholders, not only for proxy say-on-pay and director votes, but also in capital allocation decisions.[9] Good disclosures will drive capital formation.
Shareholders are further entitled to a fulsome, detailed and fair picture of the process of how executive compensation is set:
- Who is involved in the decision-making?
- What information do those decision-makers utilize, and what factors go into their process?
- What level of independence do they bring to bear?
- What are their relative incentives, and are incentives to simply “go-along” with management’s demands sufficiently mitigated?[10]
Disclosures should further allow investors to understand and evaluate the corporate incentives at play:
- Do compensation packages foster long term business strategies and economic growth as opposed to “short-termism”?
- Are the fates of corporate executives sufficiently aligned with relevant performance metrics? Is compensation tied to both “upsides” and “downsides”?
- Do compensation packages promote corporate investments in operations, human capital, innovation, or other areas that shareholders may feel are critical to a company’s success?[11] What targets are being used in incentive-based calculations and are those targets aligned with shareholder goals?
- Are companies sufficiently responsive to shareholder feedback?
These are lofty principles to keep in mind during today’s session.
Questions for Discussion
Compensation Trends.The Chairman has posed a number of questions in advance of these roundtables. Many focus on how compensation is set today. I’m also interested in hearing about compensation trends. Long-term data on executive compensation can be both decision-useful for shareholders writ large and can help us evaluate potential weaknesses in the market. For example, we’re just starting to realize the data from our pay versus performance rulemaking in 2022. And, the figures on “compensation actually paid” metrics are potentially revealing. The data show that the highest paid CEO in 2024, using compensation actually paid metrics, made over $6.9 billion.[12] The ratio of CEO to median employee pay at S&P 500 companies rose to approximately 192:1, and at the companies of the 100 highest paid CEOs, that ratio is 348:1.[13] Do larger data sets reveal compensation trends or practices that may foretell problems down the road?[14]
Material Information. Looking further into the roundtables, the Chair has posed a number of questions on what information is material to shareholders. Feedback from investors on the materiality of executive compensation disclosures has been consistently strong, from comment files in our rulemakings, to everyday conversations, to testimony in the leadup to the seminal Dodd-Frank legislation.
I nonetheless encourage all shareholders to continue to comment on what is the most decision-useful information in response to the questions posed in connection with this forum. In addition, I hope commenters will discuss how data quality can be improved and made more comparable, for example, potentially by reconciliation of non-GAAP financial measures to comparable GAAP measures.[15] I hope we see shareholder and issuer input alike, which goes not only for the preeminent panelists on the dais today, but also market participants of all stripes. Please use the opportunity to make your voices heard in the comment file.
Additionally, staff (at the behest the Commission) has recently taken steps to limit shareholder engagement with management, in the executive compensation and other contexts, by amending staff guidance on 13D and 13G filings.[16] This may put more pressure on the proxy process. How can we strengthen transparency and the quality of disclosures, both in general and specifically in light of these regulatory changes that tend to discourage shareholder communications?
Cost. The Chairman has also posed questions relating to cost. I would encourage panelists to consider all costs in their comments, and not just those incurred by issuers (which, of course, are ultimately borne by the shareholders). Oftentimes, shareholders expend substantial sums analyzing compensation data disclosed in filings. Are there ways to use technology to lower the costs of the entire ecosystem, without sacrificing the quality of data provided to shareholders – and perhaps even improving data quality?[17]
Conclusion
Thank you to all of the participants involved in today’s roundtables, and to the SEC staff who undoubtedly put many hours into the preparation and operations behind today’s event.
[1] Section 7(a) [15 U.S.C. 77g(a)] and Schedule A, Paragraph 14 [15 U.S.C. 77aa(14)].
[3] 110th Congress, Pub. Law 110-343 (Oct. 3, 2008).
[4] 111th Congress, Pub. Law 111-203 (July 21, 2010) (“Dodd-Frank”).
[6] See Dodd Frank Sections 951-955.
[7] Final Release, Pay Versus Performance, Rel. No. 34-95607 (Aug. 25, 2022).
[8] Final Release, Listing Standards for Recovery of Erroneously Awarded Compensation (Oct. 26, 2022); see also Final Release, Pay Ratio Disclosure, Rel. Nos. 33-9877, 34-75610 (Aug. 5, 2015).
[9] See, e.g., Florida’s State Board of Administration – Corporate Governance: Core Beliefs (“Executive compensation is performance-based using leading pay-for-performance metrics, with all compensation plans subject to shareowner approval; [f]ull disclosure to shareowners of all assumptions used to value the awards of options or other compensation plan items; [d]irectors and senior management own significant amounts of company stock, and the company has adopted detailed stock ownership guidelines.”).
[10] See Lucien Babchek and Jesse Fried, Executive Compensation as an Agency Problem, 3 (2003) (discussing how agency problems pervade in the public issuer context, not only between managers and shareholders, but also between directors and shareholders; “Because a CEO’s influence over the board gives her significant influence over the nomination process, directors have an incentive to ‘go along’ with a CEO’s pay arrangement.”).
[14] I agree with certain of my colleagues who have pointed out that our regime is a disclosure-based one, not intended to mandate compensation practices. Nonetheless, the disclosures themselves—individually and taken in a broader context—have proven material to investors, legislators and rule-makers alike.
[15] See, e.g., June 25, 2025 Letter from the Council of Institutional Investors to Vanessa Countryman, File No. 4-855, at 6-7.
[16] See SEC Division of Corporation Finance, Exchange Act Sections 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting, Compliance and Disclosure Interpretations Question 103.12 (updated Feb 11, 2025) (“Shareholders filing a Schedule 13G in reliance on Rule 13d-1(b) or Rule 13d-1(c) must certify that the subject securities were not acquired and are not held ‘for the purpose of or with the effect of changing or influencing the control of the issuer.’. . . A shareholder who exerts pressure on management to implement specific measures or changes to a policy may be ‘influencing’ control over the issuer. For example, Schedule 13G may be unavailable to a shareholder who recommends that the issuer . . . change its executive compensation practices.”).
[17] See, e.g., June 25, 2025 Letter from the Council of Institutional Investors to Vanessa Countryman, File No. 4-855, at 5; June 25, 2025 Letter from xBRL US to Vanessa Countryman, File No. 4-855.
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