On September 27, 2023, the Division of Corporation Finance (Corp Fin) within the U.S. Securities and Exchange Commission (SEC) introduced nine new Compliance and Disclosure Interpretations (CDIs). These new interpretations aim to bring clarifications on pay versus performance disclosure requirements. In this same initiative, Corp Fin also revised existing CDI Question 118.08, which addresses the use of non-GAAP (generally accepted accounting principles) financial measures within the proxy statement.
As respected law firm Wilson Sonsini Goodrich & Rosati points out, these new interpretations and revisions form part of a wider strategy to ensure corporate and financial transparency. The changes will likely have implications across businesses, higher education institutions, and other entities obliged to provide such disclosures under federal securities law. Therefore, legal professionals will need to guide their clients on compliance with these evolved interpretations carefully.
The disclosure of pay versus performance lets investors compare executive compensation against the company’s actual financial performance. The addition and revision of CDIs are designed to refine this requirement further. In particular, the revised CDI Question 118.08 provides significant clarification on permissible contexts for the usage of non-GAAP financial measures in proxy statements, which may influence the way corporations approach financial disclosures in their reports.
In light of these revisions, it is imperative that legal professionals fully understand the updated terms and their implications. For the complete list of CDIs and other related details, please visit the detailed legal overview provided by Wilson Sonsini Goodrich & Rosati on JD Supra.
It is recommended that counsel extend their efforts in clarifying these rules by staging discussions within their firms, conducting training sessions, and initiating robust dialogue with their clients. As the regulatory landscape becomes more complex and expansive, ensuring that organizations are as informed and adaptable as possible will be crucial for successful navigation of the intricacies of federal securities law.