PvP Tracker™ Shows Corporate Preference for Tables Over Narrative

One month into tracking pay versus performance (PvP) disclosures by S&P 500 companies, trends worthy of reporting have begun to emerge in how the largest public companies are tackling this new requirement. The short analysis for now: Tables win.

When our team launched the Farient PvP Tracker™, we noted that most S&P 500 companies are usually not including additional explanatory introductions or narrative disclosures, opting to display pay and performance relationships using primarily graphics, and typically identifying an earnings metric as their “most important” company-selected measure (results vary by industry).

Disclosure trends revealed by the PvP Tracker show corporate preference for tabular lists of metrics deemed “most important” when tying performance to executive compensation outcomes, as required by the Securities and Exchange Commission rule.

For instance, 89% of all S&P 500 companies list an earnings measure in their tabular list, followed by total shareholder return (63%) and revenue (48%). However, in certain sectors such as Real Estate, TSR and Cash Flow are the most popular type of metric listed (89% and 85%, respectively). Of note: These disclosures highlight the differences in key performance indicators across industries.

 

Tabular List Metrics by Sector and Type

(Percentage of Companies)

Source: Farient PvP Tracker™ data as of April 28, 2023

 

When listing tabular metrics, 76% of S&P 500 companies have opted to use only financial metrics, while the remaining 24% use a mix of financial and non-financial measures. Some of these non-financial measures include ESG-based measures, such as greenhouse gas emissions or employee health and safety, which are listed by 13% of companies—interestingly, this is a much lower prevalence than that of large-cap companies using ESG measures in their incentive plans (see the 2023 Global Trends in Stakeholder Incentives: The Staying Power of ESG).

 

Prevalence of Financial vs. Financial Tabular Metrics

(Percentage of Companies)

Source: Farient PvP Tracker™ data as of April 28, 2023

 

The SEC PvP rule requires that a minimum of three and up to seven metrics be included in the tabular list. We found most companies opted for three (34%) or four metrics (23%). About 4% of companies listed fewer than three metrics, noting in their disclosures that they only consider one or two metrics when making executive compensation determinations.

 

Number of Tabular List Metrics Disclosed

(Percentage of Companies)

Source: Farient PvP Tracker™ data as of April 28, 2023

 

The PvP Tracker™ also reveals the highest and lowest paid CEOs under the compensation actually paid (CAP) definition, which can be positive or negative.

Of the proxies filed through April 28, 2023, Alphabet CEO Sundar Pichai was the highest paid CEO in fiscal year 2022 with CAP of $115.8 million (compared to summary compensation table [SCT] of $226.0 million and one-year TSR of -39.5%). Given the company’s steep drop in stock price, it’s notable that Alphabet also has the highest paid CEO—despite weak performance, Pichai’s extremely high grant-date pay allowed Alphabet to remain at the top of the CEO pay ranking.

At the other end of the pay spectrum, Expedia CEO Peter Kern this week reigns as the lowest paid CEO under the CAP definition. Kern’s CAP was -$235.8 million in 2022 (compared to SCT of $1.1 million and one-year TSR of -51.5%). The steep negative value reflects the impact of a $227 million drop in the value of Kern’s unvested equity between FYE 2021 and 2022. Tech companies including Expedia continue to dominate the lowest paid CEO list given performance conditions and stock price declines, which severely impact the value of realizable compensation inherent in the CAP calculation.

 

Highest and Lowest Paid CEOs in 2022

Using CAP Definition 2022

Source: Farient PvP Tracker™ data as of April 28, 2023

 

Discover Emerging PvP Trends

Whether your company has already disclosed its PvP or is preparing to, it is instructive to see how other companies are complying with the requirements. Visit the Farient PvP Tracker™ each week to discover the latest trends and analysis on these new disclosures.