Disclosure of Executive Compensation
While each company decides what its executives are paid, the amounts and types of compensation paid to the top executives of public companies is considered material information that the Securities and Exchange Commission has determined must be disclosed to the public.
Information concerning executive compensation required to be made public under federal securities laws can be found in a public company’s annual proxy statement or annual report filed with Securities and Exchange Commission Form 10-K or in registration statements filed by the company with the Securities and Exchange Commission when seeking to sell its shares to the public.
A public company must disclose in its annual proxy statement the amount and type of compensation paid to the chief executive officer of the company and to the four other executive officers who are paid the most. The public also must be informed regarding how the executives’ pay is determined and regarding the extent to which there is any relationship between the amount of compensation and the company’s performance.
The disclosure required by the Securities and Exchange Commission includes a Summary Compensation Table that is designed to provide a summary overview of material information regarding a public company’s executive compensation practices. The table sets out information for the past three fiscal years on compensation for the chief executive officer and the next four highest paid executives. Additional tables follow with information about the types of compensation provided within the last fiscal year such as stock options, pension plans, and employment contracts.
Compensation of public company executives is set by the company’s board of directors, of which a majority must be independent directors. Setting compensation may be delegated by the board to the company’s executive compensation committee, which generally must be made up of independent directors.
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