Pay, Performance, and the Quarter: What the SEC’s Reporting Proposal Means for Boards

For over half a century quarterly reporting has been a hallmark of US public markets. Now, the Securities and Exchange Commission (SEC) is exploring whether companies should be allowed to report earnings semiannually instead of quarterly, while still requiring disclosure of material events. Some boards support the change to semiannual reporting as necessary, while others fear it could reduce transparency and erode investor trust. How boards respond to this potential governance change will depend on how they engage with investors and how they view their core responsibility for financial reporting: holding companies accountable for performance.

The Case for Semiannual Reporting

Quarterly financial reporting is often criticized for encouraging short-term behavior, particularly  when paired with earnings guidance and activist scrutiny. Proponents of reduced reporting frequency argue that it would enable management to focus more fully on long-term objectives, redirecting time and attention toward creating sustainable value rather than managing short-term accounting outcomes tied to innovation and strategic investments.

Preparing quarterly financial statements is costly and distracting for management. Finance teams spend significant time on  closings, internal reviews, and investor communications, often at the expense   of supporting value-added operational and capital management initiatives. The fixed cost of maintaining public reporting structures on a continuous quarterly cycle is especially burdensome for smaller and newly public companies.

SEC Chair Paul Atkins framed the proposal as a way to reduce compliance friction without abandoning investor protections: “The government should provide the minimum effective dose of regulation needed to protect investors while allowing businesses to flourish.”

Atkins has also argued against a one-size-fits-all approach: “It is time for the SEC to remove its thumb from the scales and allow the market to dictate the optimal reporting frequency based on factors such as the company’s industry, size, and investor expectations.” History lends some support to this view. By 1930 – before the SEC or federal reporting requirements existed – almost all companies on the NYSE provided annual reports to their shareholders because investors demanded them.

Today, the United States is increasingly an outlier in its disclosure requirements. The UK and EU eliminated mandatory quarterly reporting more than a decade ago and many companies in those markets continue to provide interim updates voluntarily. Supporters argue that same flexibility in the US would lead to a better balance of transparency and allow management to redirect costs and attention toward more productive activities.

The Case Against It

Quarterly reporting provides investors with consistent, standardized checkpoints to assess performance. Less frequent mandatory reporting could increase information asymmetry – particularly for retail investors – and make it more difficult to compare companies within the same industry. Evidence from other markets suggests that eliminating quarterly reports can reduce analyst coverage and lead investors to demand a higher risk premium. For smaller or growth companies, reduced visibility may increase capital costs rather than alleviate them. Ultimately, each company must weigh the costs and benefits of semiannual versus quarterly reporting.

Moreover, postponing formal updates might not reduce short-term thinking. Instead, it could intensify scrutiny  around each semiannual release, concentrating market reactions rather than spreading them across quarterly updates.

Why Boards and Compensation Committees Should Care

Boards face fundamental challenges related to accountability, incentives, and trust that extend beyond simple concerns about reporting frequency.

If quarterly financial reporting becomes optional, boards will need to balance operational efficiency and cost considerations against the need to maintain investor confidence. This shift would place greater emphasis on board oversight of incentive plan metrics, long-term goals, and the rigor of goal setting. Research suggests that reporting cadence has far less influence on short‑termism than executive compensation design, including performance periods, goal calibration, and vesting horizons.

Even if quarterly reporting becomes optional, most large companies are likely to continue communicating with the market on a quarterly basis. Meaningful investor engagement  will remain essential regardless of regulatory requirements. The relationship between companies and investors has evolved into a near-continuous exchange, driven by investors’ demand for timely insight into progress toward long-term value creation.

Farient’s Perspective

Disclosure is a powerful driver of accountability for long-term value creation – but executive compensation is even more powerful. Companies will continue to provide transparency to their investors to remain attractive to capital providers. If less frequent reporting is allowed for certain companies – particularly  smaller ones – boards must ensure that any reduction in external accountability is offset by stronger internal accountability. This includes robust management incentives, enhanced board oversight, and evolving compliance mechanisms designed to maintain discipline and transparency during longer periods between formal reporting cycles.