The path leading to iXBRL tagging requirements in the proxy statement
Public companies tell their story to investors and the market through their annual report and proxy statement. After the financial crisis in 2008, the SEC expanded the executive compensation data required to be reported in proxy statements. In 2010, the Dodd-Frank Act directed the SEC to adopt rules requiring registrants to provide more data regarding the company’s financial performance compared to executive compensation. The SEC initially proposed the Pay vs Performance rule in 2015 and reopened it for public comment in January 2022.
Modernizing with Pay Versus Performance
The rule implements new Item 402(v) of Regulation S-K. The SEC is revising and expanding the existing executive compensation table disclosure. Registrants will be required to provide a table disclosing specific executive compensation and financial performance measures for the registrant’s five most recently completed fiscal years, depending on their status. The final rules require registrants to separately iXBRL tag each value disclosed in the table, block-text tag the footnote and relationship disclosure and tag specific data points within the footnotes to the table.
The table must include the Summary Compensation table measure of total compensation and a measure reflecting compensation actually paid. Compensation data must be reported for principal executive officer(s) (“PEO”) and, as an average, the other named executive officers (“NEOs”).
A look at the details
The financial performance measures in the table include:
- Total shareholder return (“TSR”) for the registrant
- TSR for the registrant’s peer group
- Registrant’s net income; and
- A financial performance measure chosen by the registrant and specific to the registrant (the “Company-Selected Measure”)
Form Types: Applicable proxy and information statements
Format: Inline XBRL
Timing: Registrants are required to comply with proxy statements for fiscal years ending on or after December 16, 2022.
- Large accelerated, accelerated and standard filers will be required to provide three years of data in the first proxy or information statement which contains the disclosure,
- adding another year of data in each of the two subsequent annual proxy filings that require the disclosure (for a total of five years).
Smaller Reporting Companies (SRC) will:
- Initially be required to provide two years of data,
- adding an additional year of disclosure in the subsequent annual proxy or information statement that requires the disclosure.
- Additionally, SRCs will only be required to report the data in Inline XBRL beginning in the third filing which contains pay versus performance disclosure, instead of the first.
Note: The rules do not apply to Foreign Private Issuers, Investment Management filers (such as Business Development Companies, unless self-regulated) or Emerging Growth Companies.
What does XBRL tagging mean?
XBRL, short for eXtensible Business Reporting Language, is XML-based open technology used to produce financial statements in a structured data format that can be read by people and machines. With Inline or iXBRL, tagging is used in a way that’s similar to using barcodes to scan financial numbers. By having content that can be read by machines, it’s easier to consume that information.
Resources:
- Link to final rule: https://www.sec.gov/files/rules/final/2022/34-95607.pdf
- SEC Fact Sheet: https://www.sec.gov/files/34-95607-fact-sheet.pdf
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