The Pay vs. Performance Rule and Proxy Season
As the 2025 proxy season unfolds, public companies are under growing pressure to meet the demands of the SEC’s Pay vs. Performance (PVP) rule. Now in its third year of mandatory compliance, the rule requires detailed disclosures that demonstrate the relationship between executive compensation and company financial performance. Born out of the Dodd-Frank Act in the wake of the 2008 financial crisis, the PVP rule raises the bar for transparency and invites closer scrutiny from shareholders, proxy advisors, and regulators alike.
Key Developments and Compliance Challenges for 2025
The 2025 proxy season is the first to require companies to disclose a full five years of Pay vs. Performance (PVP) data, increasing both complexity and the likelihood of regulatory scrutiny. The SEC’s Division of Corporation Finance has been closely reviewing filings, emphasizing the need for accuracy and clarity. Companies must align net income figures with audited financials, fully reconcile any non-GAAP metrics, and provide meaningful narrative or graphical explanations linking Compensation Actually Paid (CAP) to performance—mere boilerplate language is not sufficient.
Preparing for the 2025 Proxy Season: Key Considerations
- Early and Thorough Preparation
Early and thorough preparation is essential, as the complex PVP disclosures require significant planning. Companies should work closely with advisors, including accounting and valuation experts, to accurately calculate “actually paid” compensation—particularly for equity awards that need new valuation approaches.
- Assessing Compensation Structures
Boards and compensation committees should assess whether current pay structures align with company performance and shareholder interests, as investors and proxy advisors are placing greater emphasis on pay-for-performance alignment under the PVP disclosures.
- Strategic Use of Disclosures
Beyond compliance, PVP disclosures offer a strategic opportunity to highlight strong governance and justify executive pay. Transparent explanations of the pay-performance relationship can help build investor trust.
- Anticipate Investor and Proxy Advisor Reactions
The 2025 proxy season will be a key test of how PVP data influences shareholder votes, as institutional investors and proxy advisors begin integrating these disclosures into their evaluation frameworks.
Enhanced Scrutiny and Stakeholder Expectations
The PVP rule expands the amount and detail of publicly available compensation data, inviting greater scrutiny from investors, proxy advisors, and the media. This heightened transparency may impact say-on-pay votes and governance evaluations, prompting more in-depth stakeholder questions in the 2025 proxy season.
As the SEC’s Pay vs. Performance rule enters a new phase of implementation, the 2025 proxy season presents both a challenge and an opportunity. Companies that invest the time to prepare carefully, communicate clearly, and demonstrate a strong link between executive pay and performance will be best equipped to meet heightened expectations. In doing so, they can not only satisfy regulatory requirements but also strengthen credibility with investors and reinforce sound governance practices in a shifting corporate landscape.