On February 10, 2023, the Securities and Exchange Commission (SEC) issued Compliance & Disclosure Interpretations (CDIs) regarding the pay versus performance (PVP) disclosure rules under Item 402(v) of Regulation S-K[1]

The PVP disclosure rules apply to covered companies beginning with proxy statements or information statements filed for fiscal years ending on or after December 16, 2022 and generally require disclosure of (i) a PVP table accompanied by a narrative and/or graphical explanation of the relationship between “compensation actually paid” (CAP) to the company’s named executive officers and the company’s financial performance, (ii) a description of the relationship between each financial performance measure and the CAP to the named executive officers, and between the total shareholder return (TSR) of the company and the TSR of the company’s peer group and (iii) a tabular list of the most important financial measures. For further information regarding the PVP disclosure rules, please refer to our previous client alert here.

The newly issued CDIs come in the form of 13 CDIs and cover a variety of topics including the following key points that may be of interest to companies:

  • PVP Disclosure Not Required in Form 10-K. CDI 128D.01 clarifies that PVP disclosure is not required to be included in Form 10-K as the PVP disclosure is required only in proxy or information statements. In addition, PVP disclosure will not be incorporated by reference into any SEC filing, unless the company specifically incorporates it by reference.
  • Equity Awards Granted to First-Time NEO. CDI 128D.02 provides that, in calculating the equity award adjustments required by Item 402(v)(2)(iii)(C)(1), equity awards granted to a first-time named executive officer in a year prior to the individual’s appointment as a named executive officer must be included (even if not otherwise related to such appointment). This means that the change in value of those awards during the individual’s tenure as a named executive officer would be included in the calculation of CAP, even though those awards may not be reported in the Summary Compensation Table for that individual.
  • Footnote Disclosure for Adjustments to CAP in the PVP Table. CDI 128D.04 states that footnote disclosure to the PVP table under Item 402(v)(2)(iii) must be provided for each of the adjustment amounts used in calculating PVP that are deducted and added for pension value adjustments (under Items 402(v)(2)(iii)(B)(1)(i) – (ii)) and equity award adjustments (under Items 402(v)(2)(iii)(C)(1)(i) – (vi)), noting that aggregate disclosure is not permitted.

    According to CDI 128D.03, for years other than the most recent fiscal year included in the PVP table, this footnote disclosure is required only if it is material to an investor’s understanding of the information reported in the PVP table for the most recent fiscal year, or of the relationship disclosure provided under Item 402(v)(5). However, in the company’s first PVP table, the company should provide footnote disclosure for each of the periods presented in the table.
  • Use of Peer Groups for Calculating Peer Group TSR. CDI 128D.05 clarifies that, for purposes of calculating peer group TSR, a company may use any peer group that is disclosed in its Compensation Discussion & Analysis (CD&A) as a peer group actually used by the company to help determine executive pay, even if such peer group is not used for purposes of benchmarking under Item 402(v)(2)(xiv). Note that alternatively companies may use their published industry or line-of-business index for the stock performance graph under Item 201(e) of Regulation S-K for this purpose.

    According to CDI 128D.07, for companies that choose to use their CD&A peer group for purposes of calculating peer group TSR, the peer group TSR should be presented for each year in the PVP table using the peer group disclosed in the CD&A for such year, not the peer group from the most recent year in the PVP table (e.g. if there is a change in the companies in the peer group).
  • TSR Measurement Period for Newly Public Companies. Under CDI 128D.06, for companies that went public during the earliest year included in the PVP table, the measurement period for purposes of calculating TSR and peer group TSR should begin on the company’s registration date under Section 12 of the Exchange Act.
  • GAAP Net Income. According to CDI 128D.08, companies must present the amount of “net income” in the PVP table as disclosed in the company’s audited GAAP financial statements.
  • Company Selected Measure (CSM). According to CDI 128D.09, the CSM can be any financial performance measure that differs from the financial performance measures otherwise required to be disclosed in the PVP table, including a measure that is derived from, a component of, or similar to those required measures, such as earnings per share, gross profit, income or loss from continuing operations or relative TSR, which are derivatives of net income and cumulative TSR. In addition, any such measures could be included in the tabular list of the most important financial performance measures under Item 402(v)(6).

    CDI 128D.10 clarifies that stock price should not be used as a CSM if the company does not use it to link compensation actually paid to its named executive officers to company performance, even if it has a significant impact on the amounts reported in the PVP table. If the only impact of stock price on a named executive officer’s compensation is through changes in the value of share-based awards, stock price cannot be used as the CSM. However, if, for example, the company’s stock price is a market condition applicable to an incentive plan award, or is used to determine the size of a bonus pool, it may be included as a CSM.

    According to CDI 128D.11, a CSM cannot be measured over a multi-year period that includes the applicable fiscal year as the final year under the PVP table. CSM is the measure, which in the company’s assessment, represents the most important financial performance measure (that is not otherwise required to be disclosed in the PVP table) used by the company to link CAP to the named executive officers to company performance for the most recently completed fiscal year.
  • Tabular List of Most Important Financial Measures: Bonus Plan. CDI 128D.12 addresses a scenario where a company uses achievement of a financial performance measure solely to fund or determine the size of a bonus pool, but allocates bonus payouts based on criteria unrelated to such financial performance measure and does not use any other financial performance measures in determining executive compensation. In such a situation, the company cannot omit the tabular list of the most important financial measures or the CSM and related disclosures because by using a financial performance measure to determine the size of the bonuses paid from the bonus pool, the company is considered to be using a financial performance measure to link CAP to company performance within the meaning of the PVP rule.
  • CAP and Multiple PEOs. CDI 128D.13 clarifies that if a company has multiple principal executive officers (PEOs) in a fiscal year, the company may aggregate (i.e., use the total sum of) the compensation of such PEOs in a given year for purposes of the narrative, graphical, or combined comparison between CAP and TSR, net income and the CSM as required under Item 402(v)(5) so long as the presentation will not be misleading to investors.

With the 2023 proxy season under way, companies should review this guidance and assess whether any updates to their PVP disclosure is required. For additional inquiries, please contact our Compensation practice or the Baker attorney with whom you regularly consult.

[1] For the text of the CDIs, see https://www.sec.gov/divisions/corpfin/guidance/regs-kinterp, CDI 128D.01 – 128D.13.


Thomas Asmar has almost two decades of experience advising public and private companies, as well as private equity funds, on all employee benefits and compensation issues arising out of mergers, acquisitions, IPOs, financings and other corporate transactions. Thomas counsels companies in a variety of industries on the design and implementation of compensation arrangements, including employment agreements, equity compensation plans, incentive compensation, deferred compensation, severance agreements and change-in-control arrangements.