In August 2022, the Securities and Exchange Commission (SEC) adopted final rules implementing the pay versus performance (PVP) requirement in the Dodd-Frank Act. WTW has kept a close eye on PVP disclosure trends, providing insight on early trends as well as broad consensus on disclosure practices among first-year filers. In addition, WTW tracks the SEC’s Compliance and Disclosure Interpretations (C&DIs) that accompanied the final rules, most recently in November 2023 (see SEC issues November 2023 guidance on pay versus performance).
Last month, WTW hosted a webcast covering the latest trends affecting the executive compensation landscape. One of the topics of interest that we covered was PVP.
This WTW Executive Pay Memo provides an updated review of PVP year-two disclosures at S&P 1500 companies that were covered during the webcast. The disclosure sample used in the webcast included about 280 organizations; this review has been updated to reflect a more robust sample of approximately 530. Overall trends remain consistent across the samples. For more information on WTW’s May 7 webcast, access the webcast recording and presentation.
WTW found that the overall trends in PVP disclosures were comparable to those in the first year of PVP in 2023. The majority of organizations continued to use profit or income measures for their company-selected measure. This comes as no surprise, as a short list for determining the company-selected measure was to review the measures used in company executive incentive plans, which tend to rely heavily on profit or income measures, especially in annual incentive plans. In terms of the total shareholder return (TSR) comparator group, the market pointed to the use of an industry index, with 80% of organizations opting for that route. The locations of the PVP disclosure continues to be near the CEO pay ratio, and graphical descriptions of PVP were heavily favored over narrative descriptions.
| Element | Market practice | Movement from prior year? |
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| Company selected measure (CSM) |
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| Tabular list |
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| Graphical vs. narrative description |
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| TSR comparator group |
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| Location in the proxy statement |
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The form of the graphical description of PVP tended to be a dual y-axis chart that compared company and peer TSR performance with compensation actually paid (CAP). WTW collected the CAP values disclosed by companies in year two in order to compare S&P 1500 TSR to median CEO compensation actually paid. Figure 2 mirrors the graphical disclosure form chosen by many organizations.
As expected, compensation actually paid tends to track with TSR. Equity is generally valued under CAP by the change in fair value from prior fiscal year end to either vesting date or current fiscal year end, so it is not surprising that it increases and decreases with annual fluctuations in stock price.
Alongside the collection of overall trends in year two, WTW also analyzed the disclosures of individual companies to determine any differences between year one and year two. If your organization made changes to its PVP disclosure for year two, you are not alone: 31% of organizations disclosed revisions or made changes to PVP disclosure for year two. Of the types of revisions and changes WTW examined, alterations to disclosed pay or performance values were more common than revisions of PVP disclosure decisions. PVP disclosure decisions include determining the company selected measure or TSR comparator group. WTW found only 1% to 2% of organizations changed either of those decisions for year two. Changes in disclosed pay or performance were more common.
| Changes in disclosed pay/performance were more common | Changes in PVP decisions were rare |
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Changes in disclosed pay:
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Company-selected measure:
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Changes in disclosed performance:
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TSR comparator group
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While it was clear in PVP year one that the footnote reconciling CAP to Summary Compensation Table (SCT) needed to include multiple years (three years for most companies), for PVP year two WTW tracked whether companies were opting to include just the incremental year or all years with each subsequent disclosure. Companies tended to reproduce prior year reconciliations in PVP year two, with only 8% of organizations disclosing just a single year in the CAP-to-SCT-reconciliation footnote.
As companies continue to plan for their annual PVP disclosures, it is safe to say that the disclosure trends reaffirmed in year two will remain, absent further C&DIs from the SEC steering companies in a materially different direction. Companies should continue to make PVP disclosure decisions grounded to their core incentive plan structure and design to avoid changing the company-selected measure or TSR comparator group annually to produce a comparison that might appear aligned for any single year. Those with a program rooted in paying for performance will tend to show alignment over time.
