When Paul Atkins, Chair of the U.S. Securities and Exchange Commission, spoke at the Texas A&M University School of Law Corporate Law Symposium, he discussed the growing complexity of SEC disclosure rules.

Referring to executive compensation disclosure under Item 402 of Regulation S-K, he said:

“The rule today has morphed into a Frankenstein monster beyond recognition… disclosure intended to inform can instead overwhelm.”

Today, Berkshire Hathaway filed its DEF 14A proxy statement — and it provides a fascinating example of that concern. Because of Item 402(u), the company must disclose its CEO pay ratio.

Yet Warren Buffett has earned $100,000 annually for more than 40 years, with no bonus and no equity compensation.

Nevertheless, Berkshire still had to estimate the median compensation of 387,815 employees across more than 60 operating groups in order to compute the required ratio.

The result:

• CEO compensation: $389,488 ($289,488 of this is security)
• Median employee compensation: $93,709
• Pay ratio: 4.16 to 1

In the proxy statement, Berkshire explicitly questioned whether the cost/benefit of complying precisely with Item 402(u) provides meaningful information to shareholders. While the cost is probably inconsequential to the company, I suspect the attention required for this is non-trivial since they run such a tight ship.

If the SEC is serious about rationalizing, simplifying, and modernizing Regulation S-K, this raises a straightforward question:

Should CEO pay ratio disclosure be required when total CEO compensation is below $1 million?

For companies like Berkshire, the disclosure may add complexity without materially improving investor understanding.

And Berkshire is not unique — more broadly, there are a non-trivial number of public companies where CEO compensation is below $1 million, suggesting this issue may not be unique.

For researchers interested in examining these disclosures, Mr. Buffett’s compensation — along with the all of the other proxy filers who made their filing today — will be available around midnight tonight for analysis in the directEDGAR Executive Compensation database.

We completed the out-of-cycle update to the Tax-Recon database. Manish did a heroic job.

First off, the distribution so far – 988 firms that have filed their 10-K as of yesterday (3/2) have adopted the requirements of ASU-2023-009 on a prospective basis. 760 adopted on a retrospective basis. When you access the database – remember that ASU-2023-009 was required for FY beginning after 12/15/202. If you filter on 2026 filings you will find no ASU_STANDARD flag for 214 accession numbers – so far one of these is a REIT, the other 213 had fiscal years ending in October, November and even early December so they are just now subject to the new disclosure requirements.

While we are investigating ways to remove some of the flags – their existence should not keep you from moving forward. For example, there are 245 cases where we have inserted a CHECK_TOTAL flag. It looks like the vast majority of these are because the registrant reports a subtotal – that is not labeled as such. Here is an example from GATX’s 10-K –

The Foreign tax effects line represents the net foreign tax effect on the dollars and rate. When we test the addition (and we do so to confirm that we are not missing something that is hidden) we would double count those values as we would include all of the values above the subtotal. We are not changing anything – the reported totals are available in the database with the values you see. But because we don’t know we have flagged this table as one that requires review.

I have to be honest – I am not sure yet how we should handle these. One option to to add an additional flag to indicate that row is a subtotal. Another option is to delete the row.

The MULTI-TABLES flag is harmless – it is the starting place for our analytical analysis of the ASU-2023-009 adoption method. We do much more than test for the existence of multiple tables but it is part of that routine. We left that flag in the client facing database because it can be helpful if you report a concern.

With respect to the ASU_2023_09 flags. The flag ASU_2023_PROSPECTIVE identifies the data in the filing that conforms to the new disclosure standard for the CURRENT year. The flag ASU_2023_PROSPECTIVE_HISTORICAL identifies the historical (generally prior two years) data that will generally be presented in only one unit. But again, be careful, there are filers that presented data in both percentage and monetary units that adopted the standard prospectively, Boeing is a good example). Boeing has two tables, one that conforms to the new standard (and has both dollars and percentages) and their historical disclosure that also reports both dollars and percentages. The flag ASU_2023_RETROSPECTIVE identifies the filings where the registrant adopted the ASU on a retrospective basis.

I ran some very rough analysis – there are about 30% more labeled data rows when firms meet the ASU 2023-009 requirements as compared to their historical disclosures. There are lots of other interesting features in the data but I know some of our clients are focused on those.

The next big push will be when the 12/31 Accelerated filers start filing in earnest. Their deadline is 3/16 so that is not too far away.

As a reminder the dimensional flags will be really helpful so don’t forget those as you are working with this data.