At Infinite Equity, we spend a significant amount of time building Pay-Versus-Performance disclosures, and our work does not stop there. We also assist clients in preparing the other core equity compensation tables required for their proxy statements under SEC Regulation S-K Item 402, including the following tables:
- Grants of Plan-Based Awards Table (Item 402(d))
- Outstanding Equity Awards at Fiscal Year End Table (Item 402(f))
- Options Exercised and Stock Vested Table (Item 402(g))
While these tables may appear more straightforward than the Pay-Versus-Performance table from a computational perspective, each comes with its own quirks that can result in inconsistent, incomplete, or technically incorrect disclosure. These concerns may seem minor, but they can lead to additional, unneeded scrutiny from readers like investors and proxy advisors. Below, we outline some of the most common mistakes we encounter in practice and how to avoid them.
1. Grants of Plan-Based Awards: Ensuring Alignment with the Summary Compensation Table (SCT)
A recurring issue we see is inconsistent reporting of grant-date fair values between the Grants of Plan-Based Awards Table and the Summary Compensation Table.
Remember that the purpose of the Summary Compensation Table and the Grants of Plan-Based Awards Table are meant to demonstrate the granted value of equity awards:
- The Summary Compensation Table reflects the total accounting value of equity awards at grant relative to the other components of pay an executive receives.
- The Grants of Plan-Based Awards Table is meant to be an itemization of the equity awards granted to the executive during the year and their accounting value at grant.
Grant-Date Fair Value Must Match the SCT
SEC rules require that the total grant-date fair value of equity awards, including any incremental fair value from award modifications, reported in the Grants of Plan-Based Awards Table must be tied to the SCT totals for equity compensation.
- SCT rules: Item 402(c)(2)(v) and (vi)
- Grants of Plan-Based Awards rules: Item 402(d)(2)(viii)
Companies may miss this alignment, particularly when awards have been modified during the year. A good check in your proxy table development model is to do a summation for each NEO to make sure the totals match.
Watch Out for Long-Term Performance Cash Awards
Long-term performance-based cash awards with performance periods longer than one year often cause complications because:
- In the SCT, they are reported in the year they are earned, per Item 402(c)(2)(vii).
- In the Grants of Plan-Based Awards Table, they are reported in the year they are granted, per Item 402(d)(2)(iii).
For annual non-equity incentive plans with a one-year performance period, the awards align naturally. For long-term cash programs, however, the two tables may show different awards in different years, which can be misconstrued unless disclosed clearly.
Additional Disclosure Requirements Often Missed
If an Option or SARs exercise price is different from the closing price on the date of grant, a closing price column should be added to the disclosure, along with an explanation of the exercise price methodology in a footnote. (Item 402(d) Instruction 3)
If the Board’s approval date of a grant is different from that grant date, a separate column must be added to the Grants of Plan-Based Awards Table noting the Board Approval date. (Item 402(d)(2)(ii))
2. Outstanding Equity Awards at Fiscal Year End: Correctly Reporting PSUs and Other Complex Awards
This table is deceptively complicated and often where we run into the most challenges.
As the name indicates, the Outstanding Equity Awards at Fiscal Year End Table is meant to show the outstanding value of equity awards. Determining the value of an in-flight equity award means different things to different stakeholders, so the SEC has very specific rules on how these awards should be presented in the table.
Rounding Up PSU Performance Levels
Under Item 402(f)(2) Instruction 3, companies must report the number of shares underlying PSUs based on performance rounded up to the next performance tier:
- Below threshold, report at threshold.
- Between threshold and target, report at target.
- Above target, report at maximum.
For awards without a threshold/target/max structure, companies must instead use a representative payout based on performance to date.
Do Not Forget Dividends and Dividend Equivalents
If a company accrues or reinvests dividends on PSUs, the value of those dividends must be included in the outstanding award values.
This is one of the most overlooked adjustments we see when reviewing this table.
Use Aggregation Carefully
Item 402(f)(2) Instruction 4 allows awards to be grouped if they share identical economic characteristics, such as exercise price and expiration date. While this approach can simplify presentation, it introduces risk:
- Awards may be mistakenly grouped or omitted.
- Footnotes may fail to describe individual vesting schedules.
- Aggregation may reduce transparency for investors.
Improper aggregation can obscure key details and create reconciliation challenges.
3. Options Exercised and Stock Vested: Report Values on a Gross Basis
This table often receives minimal attention, yet it is the only required table showing actual option exercise and vesting activity or realized equity compensation.
Report Gross Option Exercise Numbers
Per Item 402(g)(2) and the related instructions, companies must report gross shares exercised and gross value realized, not the amounts net of taxes withheld.
A similar, “all up” approach applies to Stock Appreciation Rights (SARs). Per C&DI Regulation S-K Question 123.01, the gross number of SARs exercised must be reported, not the net shares delivered.
Include Dividends in Vested Stock Totals
As in the Outstanding Equity Awards table, vested stock totals must include any dividends paid or credited that were included in the value realized on vesting.
See SEC C&DI Regulation S-K Question 122.04
4. Do Not Overlook the Footnotes!
A final, easily overlooked area of these disclosures are the footnotes.
While there are some formalized rules about what to include in the footnotes for these supplemental compensation tables, SEC rules for these are not as broad-reaching as the tabular guidance is.
This is an opportunity for issuers to provide additional context on the awards reported in each table, but be careful in adding too much complexity to the footnotes:
- More extensive footnote disclosures can lead to more details that need to be updated/reviewed/corrected.
- The level of detail may set certain expectations from investors and proxy advisors about future disclosures. In the future, removing some of the detail provided in footnotes from prior years may lead to questions from investors about why specific content was removed.
Some specific SEC footnote rules and guidance to keep in mind include:
- Calling out Tandem awards in the Grants of Plan-Based Awards Table. (Item 402(d) Instruction 4)
- Highlighting the vesting schedules in the Outstanding Equity Awards at Fiscal Year End table. (Item 402(f)(2) Instruction 2)
- Quoting the net options or SARs received in the Options Exercised and Stock Vested Table. (C&DI Regulation S-K Question 123.01)
Conclusion: Minor Errors Can Have Major Impacts
Even small inconsistencies in equity compensation tables create misalignment between CD&A narrative, the data presented, and how investors and proxy advisors interpret your pay program
Given the specificity of the SEC rules and the increasing scrutiny from investors, these tables deserve careful attention.
If you would like an expert review of your equity compensation disclosures or support preparing next year’s proxy tables, the team at Infinite Equity is here to help. Our specialists regularly review proxy disclosures for technical accuracy, internal consistency, and alignment with SEC guidance, helping issuers reduce risk and avoid unnecessary scrutiny. Contact us to discuss how we can support your next proxy season.
