Better Markets has filed a comment letter with the Securities and Exchange Commission in response to a proposed rule that would require companies to disclose to investors how their actual executive compensation relates to the company’s financial performance.

Why It Matters. Under Section 953(a) of the Dodd-Frank Act, the SEC is required to adopt rules requiring companies to disclose to investors the relationship between executive compensation actually paid and the financial performance of the company. It is one part of an important collection of reforms that increase transparency surrounding executive compensation, enable shareholders to play a larger role in setting compensation, and limit bloated executive compensation packages that undermine a firm’s long-term success and encourage high-risk activities.

What We Said. The SEC has developed a robust rule, and in this re-proposal stage, it is considering enhancements that we support. For example, the final rule should expand the metrics of financial performance to include not just “total shareholder return,” which can be misleading, but also metrics based on net income. The SEC should also require disclosure of the five most important performance measures used to set compensation, which will shed much-needed light on how companies and executives are prioritizing environmental, social justice, and sound corporate governance factors.

Bottom Line. Better Markets supports the enhancements the SEC is considering to the current executive compensation disclosure regime. And as always, we urge the Commission to resist the inevitable calls from industry opponents to weaken or dilute this generally well-crafted rule, and we caution against the preparation of an unreliable, unfair, and unnecessary quantitative cost-benefit analysis.

Read our full Comment Letter here or click the button below.