Bridge over ocean
29 October 2019 Issue Brief

Executive Compensation and Disclosure

We need increased disclosure of senior executives’ compensation practices at companies and prudent pay structures through performance-based metrics. Now that a say-on-pay vote is part of the proxy process, better disclosure around executive pay is imperative so that investors can make informed decisions.


In May 2016, the SEC proposed rules prohibiting certain institutions (including brokers, dealers, and investment advisers) with at least $1 billion in assets from having incentive-based pay arrangements (as opposed to base pay) that encourage excessive risk-taking. The rules also would require the institutions to disclose details of their incentive-based compensation arrangements to the SEC.

In addition, larger companies (those with $50 billion or more in total consolidated assets) would have to defer half of the incentive compensation for executive officers over a three-year period. The boards of these institutions also would have to identify individuals other than executive officers who have the ability to affect risk and approve the compensation arrangements of those people.

Pay disclosure in the United States has improved since 2006, as more companies view the compensation discussion and analysis (CD&A) in a proxy statement as a communications document rather than simply a compliance document. But this view is still an exception rather than the norm.

CFA Institute Viewpoint

Executive Compensation

The rule in the United States intrudes into areas in which regulators lack required knowledge and expertise. We have misgivings about their ability to correlate pay at diverse financial institutions with “excessive risk” without causing undue harm. Moreover, although we support shareowner say-on-pay, the costs of delving into company compensation outweigh their intended benefits.

Compensation for senior company executives and incentive structures for asset managers should be explicitly linked to long-term financial and operating performance. Creating a link between compensation and fundamental performance for company executives and for asset managers will better serve investors' interests.

Issuers should have a remuneration committee of independent directors to determine the compensation of senior officers and directors. This committee will enable members to act independently in determining what to offer senior executives in compensation, without influence from those whose interests are conflicted.


CFA Institute has called on the SEC to provide shareowners and issuers with better guidance around the CD&A and the process around the creation of the CD&A. This guidance would emphasize the element of engagement with shareowners to address their legitimate concerns. It also would provide guidance about how to better frame the CD&A as a communications tool that clearly and concisely tells the story of a company’s compensation practices and their relation to overall strategies rather than simply as tick boxes using boilerplate legalese.

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