The federal securities laws require clear, concise and understandable disclosure about compensation paid to CEOs, CFOs and certain other high-ranking executive officers of public companies. Several types of documents that a company files with the SEC include information about the company's executive compensation policies and practices. You can locate information about executive pay in: (1) the company's annual proxy statement; (2) the company's annual report on Form 10-K; and (3) registration statements filed by the company to register securities for sale to the public.
The easiest place to look up information on executive pay is probably the annual proxy statement. Annual reports on Form 10-K and registration statements might simply refer you to the information in the annual proxy statement, rather than presenting the information directly. Click here for information on how to locate a company's annual proxy statement on the SEC's website.
A company must disclose information concerning the amount and type of compensation paid to its chief executive officer, chief financial officer and the three other most highly compensated executive officers. A company also must disclose the criteria used in reaching executive compensation decisions and the relationship between the company's executive compensation practices and corporate performance.
The Summary Compensation Table is the cornerstone of the SEC's required disclosure on executive compensation. The Summary Compensation Table provides, in a single location, a comprehensive overview of a company's executive pay practices. It sets out the total compensation paid to the company's chief executive officer, chief financial officer and three other most highly compensated executive officers for the past three fiscal years. The Summary Compensation Table is then followed by other tables and disclosure containing more specific information on the components of compensation for the last completed fiscal year. This disclosure includes, among other things, information about grants of stock options and stock appreciation rights, long-term incentive plan awards, pension plans; and employment contracts and related arrangements.
In addition, the compensation discussion and analysis (“CD&A”) section provides narrative disclosure explaining all material elements of the company’s executive compensation programs.
The federal securities laws also require companies to put the disclosed pay of its executives to a vote by shareholders in so-called say-on-pay votes. The votes are only required to be advisory in nature, but each company must disclose in the CD&A whether and, if so, how its compensation policies and decisions have taken into account the results of the most recent say-on-pay vote. Companies are required to have say-on-pay votes either every one, two or three years. For more information on these say-on-pay votes, see our Investor Bulletin on say-on-pay votes.
NOTE: The decision by a company regarding the amount and type of compensation to give an executive officer is a business decision and is not within the jurisdiction of the SEC. Rather, the SEC's jurisdiction extends to disclosure—making sure that the investing public is provided with full and fair disclosure of material information on which to base informed investment and voting decisions.