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US Securities and Exchange Commission

Investor Group Presses New SEC Leadership to Address Non-GAAP in Executive Pay

Soyoung Ho, Checkpoint News  Senior Editor

· 5 minute read

Soyoung Ho, Checkpoint News  Senior Editor

· 5 minute read

With new leadership at the Securities and Exchange Commission (SEC), the Council of Institutional Investors (CII) is once again urging the commission to close a loophole in regulations governing public companies’ use of financial measures based on something other than GAAP to determine executive compensation.

The council first made its request to the SEC in a rulemaking petition and has continued to advocate for action. However, both former chairs Jay Clayton and Gary Gensler did not put the item on the rulemaking agenda as the agency had numerous priorities.

Now the influential investor group renewed its case during a recent meeting of the SEC’s Investor Advisory Committee (IAC).

The CII represents employee benefit funds, foundations, and endowments with more than $5 trillion in combined assets under management.

In particular, the CII is calling for a rule that would improve the non-GAAP measure presentation in the proxy statement’s Compensation Discussion and Analysis (CD&A). A wide-variety of performance metrics used for executive pay are often based on non-GAAP adjusted measures that are not reconciled to GAAP, which can be misleading.

While there are rules on the use of non-GAAP measures, they do not apply to the target measures for compensation in CD&A–an important source of information for investors when evaluating executive pay.

The CII believes the SEC should require companies to reconcile the non-GAAP measures used for executive pay to GAAP and provide a narrative description of why these non-GAAP financial measures are more appropriate than GAAP figures.

This is especially important because many large public companies disclose adjusted earnings or other financial measures that do not follow official GAAP.

At the IAC meeting on June 5, 2025, CII General Counsel Jeffrey Mahoney cited research from Calcbench and Suffolk University, which found that 351 companies in the S&P 50 reported at least one adjustment to net income or earnings per share in their 2024 earnings releases.

In total, there were over 2,200 adjustments, with an average adjustment value exceeding $135 million. The average company made more than six adjustments.

Of these 351 companies, 89% reported non-GAAP net income higher than GAAP net income by an average of $870 million per company, or about 30% of GAAP net income.

Regulation G and Item 10(e) of Regulation S-K, which govern the use of non-GAAP figures, are designed to protect investors. Mahoney emphasized that one of the most important provisions is the requirement for companies to provide a quantitative reconciliation of each non-GAAP financial measure to its most directly comparable GAAP measure.

“I am hopeful that the Investor Advisory Committee will work with CII and the Commission and its staff, under Chair Paul Atkins, to remove this long-standing anomaly in the requirements of Regulation G and Item 10 (e) of Regulation S-K,” Mahoney said.

 

This article originally appeared in the June 20, 2025, edition of Accounting & Compliance Alert, available on Checkpoint.

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