Statement by Commissioner Uyeda on Final Rule Regarding Pay Versus Performance

Mark T. Uyeda is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on his recent public statement. The views expressed in the post are those of Commissioner Uyeda, and do not necessarily reflect those of the Securities and Exchange Commission or the Staff.

Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) requires the Commission to issue a rule requiring disclosure of information reflecting the relationship between executive compensation actually paid by a company and the company’s financial performance. [1] Although this provision lacks a statutory deadline, it is unacceptable for more than twelve years to elapse before fulfilling a Congressional mandate.

However, no provision of the Dodd-Frank Act exempts the Commission from having to comply with the Administrative Procedure Act. [2] Rather than taking the more appropriate route of re-proposing the pay versus performance rule with updated data and analysis, the Commission bypassed having an effective notice-and-comment process as required by the Administrative Procedure Act in favor of a procedural shortcut. [3]

The proposal to implement the Dodd-Frank Act’s pay versus performance requirement was initially issued on April 29, 2015. [4] On January 27, 2022, the Commission reopened the comment period on the proposed rule (“Reopening Notice”). [5]

The Reopening Notice did not update any economic analysis, benefits and costs discussion, or analysis required by the Paperwork Reduction Act [6] and the Regulatory Flexibility Act. [7] In contrast, the 2015 Proposal included nearly 34 pages of economic analysis assessing the impact of the proposed rule. [8] Thus, the public, in providing new comments on the rule, could only respond to a seven-year old economic analysis.

The use of stale information is particularly puzzling given the Commission’s stated focus on obtaining robust economic data. As described in the Commission’s 2022 Congressional Budget Justification, “[w]ith respect to rulemaking, the SEC continues to leverage its robust processes for obtaining public input and performing rigorous economic analyses of the agency’s rules at both the proposal and adoption stages.” [9]

Today’s action also contradicts the Commission staff’s guidance on economic analysis, which states that “[a]n economic analysis of a proposed regulatory action compares the current state of the world, including the problem that the rule is designed to address, to the expected state of the world with the proposed regulation (or regulatory alternatives) in effect.” [10] The guidance further states that proposing releases should include “a discussion of any existing studies or data that bear on the proposal so that the public knows what studies or data we are relying on, can comment on it, and can provide additional data relevant to the topic.” [11]

The failure to update the economic analysis in the 2015 Proposal is problematic because the data on the use of executive stock grants and stock options grants in that release was from 2010 and 2012, while other data on the vesting of options grants ranged from 1997–2008. [12] The Adopting Release, in contrast, includes economic analysis reflecting more recent trends in executive compensation from 2020. [13] Most notably, the 2020 data indicates a significant move away from the use of stock options and pension plans as a form of executive compensation. This recent data, had it been included in a re-proposal, could have served to better inform the views of the public.

In addition, the Reopening Notice proposed new regulatory alternatives. They included a tabular list of the five most important measures used by registrants to link compensation actually paid during the fiscal year to company performance, and a requirement to disclose company-specific measures rather than to permit optional disclosures. The Reopening Notice, however, did not provide any accompanying economic analysis or a review of the effect that such alternatives may have on smaller entities. [14]

One commenter stated that “the action taken by the SEC reads less like the ‘reopening’ of a comment period and more like a newly-issued rule proposal that should be subject to robust economic analysis by the SEC and a sufficient comment period for the public. If the SEC wishes to consider new regulatory mandates to implement Section 953(a) that were not included in the 2015 Proposal, it should issue a re-proposal with an updated economic analysis of the rule’s potential consequences in accordance with the Administrative Procedure Act.” [15]

The Adopting Release dismisses any concerns about the need to re-propose, asserting that the Reopening Notice discussed the potential benefits and costs of the additional disclosures even in the absence of a standalone economic analysis. [16] However, the Reopening Notice’s approach of merely inquiring whether there are any developments since the 2015 Proposal that should affect the Commission’s consideration of the rules is insufficient. Rather than relying on commenters to provide such information, the Commission should have gathered any known data and moved forward in the form of a re-proposal. [17] Moreover, given the short 30-day comment period, the public’s ability to generate their own economic analysis was limited at best and illusory at worst. [18]

Given the known uncertainties with analyzing a complex economic issue such as executive compensation, the Commission should not compound such challenges by denying the public the ability to comment on more recent economic data, upon which the Commission relies in the Adopting Release. This process is especially important so as to mitigate the possibility of unintended consequences in already complex regulatory frameworks.

Finally, the analysis under the Paperwork Reduction Act likely dramatically understates the cost burden of complying with the final rule. The Commission estimates that outside professionals can be retained by issuers at an average cost of $400 per hour, based on “consultations with several issuers, law firms, and other persons.” [19] The Commission first started using the $400 per hour in 2006—over sixteen years ago—and it is not credible that the cost for professional legal advice has remained flat since that time. [20] This view is echoed by market participants. In 2014, in the context of the proposal implementing pay ratio disclosure under Section 953(b) of the Dodd-Frank Act, one commenter noted that “in its cost-benefit analysis the Commission explained that it used $400 per hour as an estimate for outside professionals, which is the rate it ‘typically estimate[s] for outside legal services used in connection with public company reporting.’ This assumption is severely underestimated according to the Center survey responses.” [21]

In 2016, another commenter on a Commission release shed light on the actual compliance costs, noting that “[w]e reiterate a common complaint about the average professional fees the Proposing Release uses to estimate compliance costs in that those estimates are incredibly low. For example, the Proposing Release assumes that the cost of a professional services firm is $400 per hour. This figure may represent the going rate for junior employees at these firms, but it does not at all approach the $1,000 per hour or more that experienced partners and other senior employees of major law and accounting firms now regularly charge.” [22]

Had the Commission re-proposed this rule for public comment after updating the stale data and economic analysis, I would have been open to supporting the adoption of a final rule. Unfortunately, the Commission selected a different path, one that I am unable to support today. I recognize that this decision was not made by the line staff in the Division of Corporation Finance, the Division of Economic and Risk Analysis, and the Office of the General Counsel. For their work and efforts over the past twelve years on pay for performance, I thank them.


1Pub. L. No. 111-203, Sec. 953(a), 124 Stat. 1841 (2010).(go back)

25 U.S.C. 551 et seq.(go back)

3Today’s action creates an unfortunate precedent by suggesting that long-dormant proposals can simply be revived by re-opening the comment period. This approach raises questions as to whether the Commission might similarly attempt to finalize other proposals.(go back)

4Pay Versus Performance, Release No. 34-74835 (Apr. 29, 2015) [80 FR 26329 (May 7, 2015)](“2015 Proposal”), available at back)

5Reopening of Comment Period for Pay Versus Performance, Release No. 34- 94074 (Jan. 27, 2022) [87 FR 5751 (Feb. 2, 2022)](“Reopening Notice”), available at back)

644 U.S.C. 3501 et seq.(go back)

75 U.S.C. 603(a).(go back)

82015 Proposal at 65.(go back)

9Fiscal Year 2022 Congressional Budget Justification and Annual Performance Plan, at 99, available at back)

10Memorandum from the Division of Risk, Strategy, and Financial Innovation and the Office of the General Counsel, Current Guidance on Economic Analysis in SEC Rulemakings (Mar. 16, 2012), at 21, available at back)

11Id. at 16.(go back)

122015 Proposal at n. 132 (the 2015 Proposal acknowledges the latter data may not reflect practices at the time the 2015 Proposal was published).(go back)

13Pay Versus Performance, Release No. 34-95607 (Aug. 25, 2022), at [92 and 134](“Adopting Release”), available at back)

14Reopening Notice, at 5753-54.(go back)

15Letter from Tom Quaadman, Executive Vice President, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce (Mar. 4, 2022), available at back)

16Adopting Release, at n. 7.(go back)

17Reopening Notice at 28.(go back)

18The 2015 Proposal, on the other hand, provided a significantly more reasonable comment period of 60 days after publication in the Federal Register.(go back)

19Adopting Release, at n. 684.(go back)

20See Executive Compensation and Related Person Disclosure, Release No. 33-8732A (Aug. 29, 2006) [71 FR 53158, 53214 n. 574)](“We recently have increased this hourly rate estimate to $400.00 per hour after consulting with several private law firms”). This concern about the understating of costs applies to many of the Commission’s other proposals, including on climate-related disclosures for investors. See The Enhancement and Standardization of Climate-Related Disclosures for Investors, Release No. 33-11042 (Mar. 21, 2022) [87 FR 21334, 21458 n. 1061 (Apr. 11, 2022)].(go back)

21Letter from Timothy J. Bartl, President, and Henry D. Eickelberg, Counsel, Center on Executive Compensation (Sept. 26, 2014), available at See Pay Ratio Disclosure, Release No. 33-9452 (Sept. 18, 2013) [78 FR 60559 (Oct. 1, 2013)]. The commenter further stated that “[m]ore than half of survey respondents reported external counsel costs of $700 or more, with 30 percent selecting $800 or more. [Dr. Stuart Gurrea and Dr. Jonathan Neuberger of Economists Inc.]estimate that changing this assumption, without making any other changes to cost estimates, would increase the Commission’s estimated compliance costs by 75 percent.”(go back)

22Letter from Michael W. Johnson, President and CEO, National Stone, Sand and Gravel Association (Sept. 26, 2016), available at See Modernization of Property Disclosures for Mining Registrants, Release No. 33-10098 (June 16, 2016) [81 FR 41651 (June 27, 2016)].(go back)

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