SEC Pay Proposal Would Ease Registration Timing for REITs, BDCs

The U.S. Securities and Exchange Commission on Nov. 13 proposed rewriting its executive and director compensation disclosure rules, cutting the number of executives whose pay must be detailed to two in most cases and replacing the Summary Compensation Table with three new tables.

The proposal would limit named executive officers to individuals who served as principal executive officer or principal financial officer during the last fiscal year, down from typically five or more under current rules. The rules, contained in Item 402 of Regulation S-K, were last comprehensively revised in 2006.

“Today, the commission proposed amendments to its executive compensation disclosure requirements contained in Item 402 of Regulation S-K. These amendments reflect a comprehensive reform of Item 402 that, together with other previously proposed actions, are central tenets of my agenda and focus on transforming the SEC’s public company disclosure regime to one rooted in materiality,” SEC Chairman Paul Atkins said in a statement.

What It Means for Nontraded Vehicles

The compensation tables themselves reach fewer alternative investment vehicles than operating companies. According to the SEC, externally managed business development companies generally contract with a third-party adviser for management services and generally do not have named executive officers. Among registrants filing in 2025, the SEC counted 142 BDCs with securities registered under Section 12 of the Securities Exchange Act of 1934, five of them internally managed.

The more direct change for the sector involves registration statement timing. The proposal would amend Forms S-1, S-4, S-11, 10, and N-2, including the long-form registration statements many nontraded real estate investment trusts and BDCs use to register their offerings. A registrant would not have to provide executive compensation disclosure for the most recently completed fiscal year until the earlier of the date it otherwise files that information in an Exchange Act report or proxy statement, or 120 days after fiscal year-end.

Issuers using short-form registration statements such as Form S-3 already have that window. Under current rules, a long-form registration statement filed on or after the first day of a fiscal year must include pay disclosure for the year just ended, which the SEC said can delay offerings until that disclosure is ready. If a long-form registration statement would become effective after the 120-day deadline, the registrant would have to file a pre-effective amendment adding the disclosure.

Three New Tables

The proposal would replace the Summary Compensation Table, the Grants of Plan-Based Awards Table, the Outstanding Equity Awards at Fiscal Year-End Table, and the Option Exercises and Stock Vested Table with three new tables, and would eliminate the Pension Benefits Table and the Nonqualified Deferred Compensation Table.

• Granted Compensation Table: Salary, non-equity awards such as cash bonuses, and equity awards granted during the year, generally at target value.
• Earned Compensation Table: Compensation earned during the year, including salary, bonuses, stock awards when they vest, options when they are exercised, retirement contributions, and perquisites.
• Status of Equity Awards Table: An award-by-award record tracking each equity grant from the year it is granted until it vests, is exercised, or expires.

Large accelerated filers would be required to tag the three tables in Inline XBRL. The proposal would drop the current tagging requirements for pay-versus-performance and clawback disclosures.

Perquisites and Compensation Discussion

The threshold for reporting perquisites would rise from $10,000 to $150,000 per executive, and registrants could exclude any individual perquisite that qualifies as a de minimis fringe benefit under the Internal Revenue Code. The SEC also proposed revising its 2006 interpretive guidance so that registrants would decide whether a benefit is integrally and directly related to an executive’s duties, as long as that determination is reasonable and made in good faith. The revised guidance would rescind the SEC’s prior statement that security provided at an executive’s residence or during personal travel is a perquisite.

The compensation discussion and analysis would be required to address three topics, down from seven: the objectives of the compensation program in relation to corporate strategy, the material elements of compensation and how amounts are determined, and, if applicable, how the most recent say-on-pay vote was considered. The rule’s list of 15 example topics would be eliminated.

Dodd-Frank Disclosures

The proposal would also scale back three disclosures mandated by the Dodd-Frank Act.

• Pay versus performance: The specialized Compensation Actually Paid measure would be replaced with the total from the Earned Compensation Table. Required performance measures would be limited to cumulative total shareholder return, and the disclosure would cover three years instead of five.
• Pay ratio: The median employee would be drawn only from U.S. full-time employees, excluding seasonal and temporary workers, and would be identified every five years instead of every three.
• Clawbacks: The two check boxes on annual report cover pages tied to error corrections and restatements would be removed, along with the requirement to explain why a restatement did not trigger recovery of compensation.

The proposal would also drop the quantified estimates of payments to executives under hypothetical termination or change-in-control scenarios, eliminate disclosures on compensation-related risk management and on the timing of option grants near the release of material nonpublic information, and remove the prescribed table format for director compensation.

Cost Estimates and Timing

The SEC estimated the changes would save registrants about $244,000 a year each on average, or $1.64 billion in aggregate, and that one-time implementation costs would average about $82,000 per registrant, or $553 million in total.

The proposal works alongside the SEC’s May 19 proposal to simplify filer status, which would extend the scaled disclosure accommodations now available to smaller reporting companies and emerging growth companies to all non-accelerated filers. The SEC has estimated that the new non-accelerated filer category would include about 81% of registrants and 6.5% of total public float. A separate May 19 proposal on registered offering reform would expand eligibility for Form S-3, which the SEC said could reduce the number of issuers relying on long-form registration statements.

The comment period will run for 60 days after the proposing release is published in the Federal Register. If adopted, the amendments would take effect on the Jan. 1 following publication of the adopting release, and registrants would apply them starting with their first full fiscal year ending on or after that date.

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