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Article | Executive Pay Memo North America

Pay versus performance year two disclosure trends

By Chris Kozlowski and Jessica Yu | June 5, 2024

Year two of Dodd-Frank’s pay versus performance disclosure requirement reveals trends in company decisions to guide future disclosure.
Executive Compensation

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.

PVP year two disclosures show consistency with year one

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.

Figure 1. Overall year two PVP disclosure trends
Element Market practice Movement from prior year?
Company selected measure (CSM)
  • 62% use profit/income measure
    • 29% use EBIT/EBITDA/operating income
    • 33% use net income/earnings/earnings per share
  • Profit/Income measure down 3%
Tabular list
  • 75% have 3 – 5 metrics
  • 17% included non-financial metrics
  • Using 3 – 5 metrics is down 2 %
  • Non-financial metrics up 1%
Graphical vs. narrative description
  • 83% show graphs only
  • Only 6% show narrative only
  • Using graphs only is down 1%
TSR comparator group
  • 80% use an industry index
  • 7% use 10-K custom peers and 9% use compensation peers
  • Industry index up 3%
Location in the proxy statement
  • Near CEO pay ratio
  • No change

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.

Year two PVP disclosure changes

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.

Figure 3. S&P 1500 PVP year two changes or revisions
Changes in disclosed pay/performance were more common Changes in PVP decisions were rare
Changes in disclosed pay:
  • 5% changed summary compensation table pay
  • 13% changed compensation actually paid
Company-selected measure:
  • Only 2% changed the CSM
Changes in disclosed performance:
  • Peer TSR was more commonly changed (10%) than company TSR (3%)
  • 5% changed net income values
  • 4% changed company-selected measure values
TSR comparator group
  • 1% changed the comparison group

CAP to SCT reconciliation footnotes tended to include multiple years

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.

Looking ahead

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.


Director, Executive Compensation (Pittsburgh)
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Associate Director, Global Executive Compensation Analysis Team (GECAT), Arlington
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