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Pay Versus Performance: Reading Executive Comp in the Proxy

Chad Hartman

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A say-on-pay vote result gets reported as a single approval percentage, and the story usually ends there. What actually determines whether that percentage will hold up over multiple years sits three disclosures deeper in the same proxy: the table that shows what executives were actually paid once equity awards are marked to the stock price that mattered, the ratio between CEO pay and the median employee, and the policy governing whether a company can claw back compensation after a restatement.

Our DEF 14A guide covers the proxy statement itself — the CD&A, the Summary Compensation Table, the say-on-pay vote and the approval bands that tell you whether shareholders are satisfied. This guide goes further, into the specific quantitative disclosures — some only a few years old — that determine whether that satisfaction is actually earned: the Pay Versus Performance table's "compensation actually paid" figure, the CEO pay ratio, the compensation clawback policy every listed company has been required to adopt since 2023, and the say-on-frequency vote that decides how often shareholders get to weigh in at all.

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Table of Contents

What the DEF 14A Guide Already Covers

The Compensation Discussion and Analysis and Summary Compensation Table are the foundation: the CD&A explains the compensation philosophy and peer group methodology behind executive pay, and the Summary Compensation Table reports the standardized dollar total for each named executive officer. The say-on-pay vote itself — the non-binding shareholder approval of that pay package, and the approval percentages that separate a routine result from a governance problem — is covered in depth in our proxy statement guide, along with the rest of the document. What follows is the next layer down: the quantitative disclosures that were added specifically because the Summary Compensation Table's single total wasn't giving shareholders the full picture.

Disclosure Rule What it requires When it applies
Pay Versus Performance table Item 402(v) of Regulation S-K Compensation Actually Paid alongside the Summary Compensation Table total, plus net income, total shareholder return, and a company-selected performance measure Fiscal years ending on or after December 16, 2022; five years of history, three for smaller reporting companies
CEO pay ratio Item 402(u) of Regulation S-K The ratio of CEO total compensation to the median employee's, with the identification methodology disclosed Since 2018; smaller reporting companies, emerging growth companies, and foreign private issuers exempt
Compensation clawback policy SEC Rule 10D-1, via NYSE and Nasdaq listing standards A written no-fault policy recovering erroneously awarded incentive pay for the three fiscal years preceding a restatement determination Listing standards effective October 2, 2023
Say-on-frequency vote Section 14A of the Exchange Act A separate shareholder vote on how often say-on-pay occurs — every one, two, or three years, or abstain At least once every six years

The Pay Versus Performance Table: Compensation Actually Paid

A reader scanning a CEO's total in the Summary Compensation Table reasonably takes that figure as the final word on what the executive was paid for the year. It isn't always: that total values equity awards at their grant-date price, months or years before the market has any say in what those awards end up worth. Every proxy statement for a fiscal year ending on or after December 16, 2022 must include a Pay Versus Performance table under Item 402(v) of Regulation S-K precisely to close that gap. The table covers the company's five most recently completed fiscal years (three for smaller reporting companies) and shows, alongside the familiar Summary Compensation Table total, a separate figure the SEC calls "Compensation Actually Paid," or CAP.

CAP starts from the Summary Compensation Table total and then adjusts the equity award components to reflect their value at fiscal year-end or vesting, rather than their value on the original grant date. An executive granted options when the stock was falling sees a materially lower CAP figure than the grant-date value implied. An executive granted options right before a rally sees a materially higher one. That single adjustment is why a company's own CD&A can describe a "conservative" compensation year while its Pay Versus Performance table shows CAP swinging by tens of millions of dollars — the CD&A describes the committee's original decision, and the CAP figure describes what the market did to that decision afterward.

The table also requires the company to disclose net income and total shareholder return alongside CAP for the same five years, plus a company-selected performance measure the compensation committee considers most important, and a required narrative explaining the relationship between the two. Reading that relationship description tells you directly whether the company's own required disclosure supports the CD&A's story that pay tracks performance, or whether the two diverge in ways the CD&A doesn't address.

The CEO Pay Ratio

Since 2018, every proxy statement requiring Item 402 executive compensation disclosure — other than filings from smaller reporting companies, emerging growth companies, and foreign private issuers, all of which are exempt — must disclose the ratio between CEO total compensation and the median employee's total compensation, under Item 402(u) of Regulation S-K. The company identifies its median employee once every three years using any reasonable methodology it discloses, then recalculates that specific employee's total compensation annually using the same definition applied to named executive officers.

A ratio invites the reader to rank companies against each other the moment two of them report one — a low ratio at one company and a high ratio at another read like they're measuring the same thing. In practice they aren't: the ratio varies enormously by industry and workforce composition, which makes single-company trend, not cross-company comparison, the more reliable way to read it. National Health Investors disclosed a CEO-to-median-employee ratio of roughly 10 to 1 for fiscal year 2024 — a healthcare REIT with a small, relatively uniform corporate workforce. A retailer or restaurant chain with a large hourly workforce will show a structurally higher ratio than that, independent of whether either company's CEO pay is reasonable. What's worth tracking is the ratio's direction at a single company over several years: a ratio climbing steadily while median employee compensation stays flat in nominal terms is a different story than one where both figures are rising together.

The Compensation Clawback Policy

A clawback reads like a penalty, and the natural assumption is that one only fires after a company has proven an executive did something wrong. SEC Rule 10D-1 doesn't require that proof: every NYSE- and Nasdaq-listed company has been required to maintain a written compensation clawback policy since the exchanges' listing standards took effect on October 2, 2023, and the policy requires the company to recover erroneously awarded incentive-based compensation from current and former executive officers whenever an accounting restatement is required — covering compensation received during the three fiscal years preceding the restatement determination, regardless of whether any executive officer was personally at fault. A company that fails to adopt a compliant policy, fails to disclose it, or fails to actually enforce a recovery it triggers risks delisting.

The policy itself is filed as an exhibit to the annual report, and the proxy discloses whether a clawback was actually triggered during the year and, if so, the amount recovered. This is the direct link back to amended SEC filings: a 10-K/A that restates prior financial statements is precisely the event that can trigger a mandatory, no-fault recovery of incentive pay under this policy — which means an investor who spots a restatement has a specific, disclosed follow-up question: did the company's clawback policy actually claw anything back?

The Say-on-Frequency Vote: How Often Shareholders Get a Say

Separate from the say-on-pay vote itself, Section 14A of the Exchange Act requires companies to hold a distinct say-on-frequency vote at least once every six years — a single decision that can set the cadence for as many as six annual say-on-pay ballots before shareholders revisit it — asking shareholders how often they want future say-on-pay votes to occur. The ballot presents exactly four choices: every one year, every two years, every three years, or abstain. The board can recommend an option but cannot limit the vote to a yes/no on that recommendation.

The overwhelming majority of large-cap companies land on annual votes, which is why say-on-pay shows up on most proxy ballots every year without a reader ever noticing the underlying frequency decision. A company running a three-year cycle instead is disclosing something worth registering: shareholders get roughly a third as many formal opportunities to register dissent through this specific channel, which raises the bar for what "the last vote was fine" actually tells you about the current year's pay practices.

Beyond the Summary Compensation Table: The Equity Award Detail Tables

Four additional standardized tables under Item 402 sit behind the Summary Compensation Table's headline totals, and together they show the mechanics the total column compresses into one number. The Grants of Plan-Based Awards table discloses the specific equity and non-equity incentive awards granted during the year. It includes the threshold, target, and maximum payout levels for performance-based awards — the range the Summary Compensation Table's single reported figure was drawn from. The Outstanding Equity Awards at Fiscal Year-End table shows every unvested option and stock award an executive is currently holding, the closest thing the proxy offers to a real-time snapshot of unrealized executive wealth tied up in the stock. The Option Exercises and Stock Vested table reports what an executive actually received in cash or shares during the year from exercising options or vesting awards — the closest thing to "compensation actually pocketed" that exists outside the Pay Versus Performance table's CAP calculation. Pension Benefits and Nonqualified Deferred Compensation round out the set for companies that still offer those structures, increasingly rare outside older, larger organizations.

Read together with the Summary Compensation Table, these four tables answer a question the total column alone cannot: not just what an executive was paid on paper this year, but what they're actually sitting on, and what they've actually converted to cash.

Table What it shows The question it answers
Summary Compensation Table The standardized dollar total for each named executive officer What was the executive paid on paper this year?
Pay Versus Performance Compensation Actually Paid — equity revalued at fiscal year-end or vesting What was that pay decision worth once the market repriced it?
Grants of Plan-Based Awards Equity and non-equity incentive awards granted during the year, with threshold, target, and maximum payout levels Where did the Summary Compensation Table's single figure come from?
Outstanding Equity Awards at Fiscal Year-End Every unvested option and stock award the executive is currently holding How much unrealized wealth is tied up in the stock?
Option Exercises and Stock Vested What the executive actually received in cash or shares from exercises and vesting during the year What has actually been converted to cash?
Pension Benefits and Nonqualified Deferred Compensation Deferred and pension arrangements, at the companies that still offer them What is owed beyond current-year pay?

One caveat applies to every row of that table. None of these disclosures sit inside the audited financial statements — they are Item 402 proxy disclosures, prepared by the company and overseen by the compensation committee, and the auditor's opinion on the 10-K does not extend to them. Our guide to which SEC filings are audited covers where that line falls across the rest of the filing set.

Reading Compensation Data Against What GeminIQ Already Tracks

None of the tables covered here are XBRL-tagged financial statement data, and GeminIQ doesn't extract them directly — they're proxy disclosures governed by Item 402 of Regulation S-K, not the 10-K and 10-Q filings GeminIQ's Financial Statements feature is built on. What GeminIQ does carry is the financial-statement consequence of everything the proxy discloses: the aggregate stock-based compensation expense the Summary Compensation Table's individual figures roll up into, and the share dilution that equity awards eventually produce.

GeminIQ's pre-calculated Stock-Based Compensation metric is the company-wide total that the proxy's individual NEO figures represent a small, named slice of, and Stock-Based Compensation to Revenue puts that aggregate cost in proportion to the business. The Dilution Ratio metric measures the share-count side of the same story, calculated from the filed financial statements rather than from the proxy: it divides the weighted average diluted share count by the weighted average basic count, both taken as filed, so the gap between them is the effect of every option, warrant, convertible and unvested RSU still outstanding. Awards the proxy discloses at the individual level land in that number twice — first widening the basic-to-diluted gap while they sit outstanding and unexercised, then moving into the basic count itself once they are exercised or vest. Most mature companies run a ratio between 1.00 and 1.03; companies leaning heavily on stock compensation run 1.03 to 1.10, and persistent dilution above 3% to 5% is the level worth explaining. The proxy tells you who received the awards. The share count tells you what they cost every other holder. Which filings a platform actually extracts from is worth confirming before assuming a figure is there — our comparison with TIKR sets out what GeminIQ pulls and where it draws the line.

Frequently Asked Questions

What is "compensation actually paid" in the Pay Versus Performance table?

Compensation Actually Paid, or CAP, starts from the Summary Compensation Table total and replaces the grant-date value of equity awards with their value at fiscal year-end or vesting. It's required under Item 402(v) of Regulation S-K and can differ substantially from the Summary Compensation Table figure in years when the stock price moved sharply after grants were made.

Which companies are exempt from CEO pay ratio disclosure?

Smaller reporting companies, emerging growth companies, and foreign private issuers are all exempt from Item 402(u)'s pay ratio requirement. Every other company subject to Item 402 executive compensation disclosure must include it.

Does a compensation clawback require executive wrongdoing?

No. Rule 10D-1's listing-standard requirement is a no-fault recovery: if an accounting restatement is required, the company must recover erroneously awarded incentive-based compensation from current and former executive officers regardless of whether any of them were personally responsible for the error.

How often do shareholders vote on say-on-pay frequency?

At least once every six years, under Section 14A of the Exchange Act. Shareholders choose among annual, biennial, or triennial say-on-pay votes, or may abstain; most large-cap companies land on an annual cycle.

Every one of these disclosures exists because the Summary Compensation Table's single total wasn't enough on its own — and together, they're the difference between reading a pay package and verifying one.

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Disclaimer: The content in this blog is for educational and entertainment purposes only and does not constitute financial, legal, or tax advice. Investing involves risk, including the loss of principal. The views expressed are my own and not intended as financial advice or a guarantee of future performance.