Pay vs. Performance Disclosure

In Depth

The pay-versus-performance (PvP) disclosure is a relatively new proxy statement requirement, finalized by the SEC in August 2022 under Section 953(a) of the Dodd-Frank Act. Companies first included this disclosure in proxy statements filed in 2023 for fiscal year 2022. The PvP table requires companies to report "compensation actually paid" (CAP) — a measure that adjusts the Summary Compensation Table total to reflect the actual value of equity awards based on year-end stock prices and vesting events, rather than grant-date fair values. This provides a more accurate picture of what executives actually received in economic value. The table must show CAP alongside total shareholder return (including a peer group comparison), net income, and one company-selected financial measure that the registrant considers the most important metric used to link pay to performance in the most recent fiscal year. Companies must also provide a narrative or graphical description of the relationships between these metrics and CAP. The PvP disclosure has been praised by governance advocates for making it easier to identify companies where high pay is accompanied by poor stock performance — a red flag for misalignment. However, critics note that the CAP calculation is complex, can produce volatile year-over-year swings driven by stock price movements rather than pay decisions, and may be difficult for average shareholders to interpret. CEOPay incorporates PvP data into our analysis to help users understand whether CEO compensation tracks with the value actually created for shareholders.