SEC proposes rules comparing executive pay to corporate performance

A new snapshot of how executives’ pay matches up with their companies’ performance would be available to investors under rules proposed Wednesday by the Securities and Exchange Commission.

The rules were mandated by the Dodd-Frank financial law that grew out of the financial crisis starting in 2008, when criticism mounted that executive pay remained high at some companies – especially on Wall Street – even as the companies and their stock prices suffered.

The SEC’s commissioners voted 3-2 to require publicly held companies to disclose “in a clear manner” more details about how executive compensation compares to a company’s total shareholder return; that is, the annual change in its stock price plus dividends.

Companies already spell out in detail their executives’ compensation in annual proxy statements filed with the SEC.

But the proposed rules “would give shareholders a new metric for assessing a company’s executive compensation relative to its financial performance,” SEC Chairwoman Mary Jo White said at Wednesday’s meeting in Washington before voting to approve the proposal.

Ahead of the meeting, the SEC said the rules also “would provide greater transparency and allow shareholders to be better informed when they vote to elect directors or vote on executive compensation.”

The proposal would be subject to a public-comment period of 60 days, after which the SEC’s staff would make a renewed recommendation on the rules to the commissioners. A second vote by the commissioners is required before the rules take effect.