The failure to require the tagging of financial statements in Regulation A+ offerings reflected a continued ambivilence by the Commission (at least some of the Commission) with respect to machine readable data. It is hard to believe that a $2000 cost will reduce the number of offerings. At the same time, requiring the use of XBRL format would have provided analysts and other market professionals with a more cost effective method of analyzing the offerings.
Yet XBRl requirements continue to surface. In Exchange Act Release No. 74835 (April 29, 2015), the Commission proposed a rule (by a 3-2 vote, Commissioners Gallagher and Piwowardissenting) that would require disclosure of pay versus performance. The proposal would require the disclosure of pay versus performance in tabular format. See Proposed Rule 17 CFR § 229.402(v). The Release proposed that the columns in the proposed table be in XBRL. See Id. ("We are proposing that the disclosure provided in each column of the proposed table, including any footnote disclosure, be provided in interactive data format using XBRL."). As the Release stated:
- The proposal would require registrants to tag separately the values disclosed in the required table, and to separately block-text tag the disclosure of the relationship among the measures, the footnote disclosure of deductions and additions used to determine executive compensation actually paid, and the footnote disclosure regarding vesting date valuation assumptions. The interactive data would have to be provided as an exhibit to the definitive proxy or information statement filed with the Commission, in addition to appearing with and in the same format as the rest of the disclosure provided pursuant to proposed Item 402(v) of Regulation S-K (e.g., in ASCII or HTML). Registrants would be required to prepare their interactive data using the list of tags the Commission specifies and submit them with any supporting files the EDGAR Filer Manual prescribes. We believe requiring the data to be tagged would lower the cost to investors of collecting this information, would permit data to be analyzed more quickly by investors and other end-users than if the data was provided in a non-machine readable format, and would facilitate comparisons among public companies. In addition, requiring the data to be tagged would facilitate analysis of how information related to a single issuer changes over time.
Two of the Commissioners supporting the proposal specifically referenced the requirement of tagging (and the IAC's encouragement of the use of tagging). As Commissioner Stein noted:
- Finally, I have been a consistent advocate for data tagging of Commission forms, so I am very pleased to see that pay versus performance disclosure, as proposed, will be tagged in eXtensible Business Reporting Language, or XBRL. The proposed rule sets forth an approach toward incorporating machine readable data for communicating compensation and performance information. XBRL streamlines the collection and reporting of financial information. XBRL data tagging involves a process in which a company essentially marks certain parts of its financial disclosure with specific defined terms from a shared dictionary, referred to as a “taxonomy”. All registrants use the same shared taxonomy, which allows for comparability across companies.
- In order to achieve comparability, we need structured data in formats like XBRL. Today’s proposal would represent the first piece of data in the proxy statement to be tagged and is hopefully a harbinger of things to come. We should be moving toward having the entire proxy statement tagged, and this is a great first step.
- As the SEC Investor Advisory Committee noted in its recommendation advocating for more data tagging, “modern technology provides the SEC with the opportunity to unlock far greater value from the information that it collects and stores.” I personally believe that tagging the entire proxy statement would unlock great value for both the Commission and shareholders.
- The current proposal is to have pay versus performance disclosure tagged in XBRL. It is my hope and expectation that this disclosure would be tagged in Inline XBRL once available, which would allow companies to file the required information and data tags in one document rather than repeated in separate exhibits. I understand that Inline XBRL is not yet available on the SEC’s Electronic Data Gathering Analysis and Retrieval (EDGAR) system, but soon will be. When that day comes, Inline XBRL should be used for pay versus performance and all other parts of the proxy statement.
- Today’s rules also take an important step forward in furthering the usability and comparability of executive compensation disclosures by requiring that “pay versus performance” information be provided in an interactive data format using XBRL. This is a new development in the corporate governance context that has long been discussed. Indeed, in its 2010 Concept Release on the U.S. Proxy System, the Commission stated that if issuers provided reportable items in interactive data format, “shareholders may be able to more easily obtain specific information about issuers, compare information across different issuers, and observe how issuer-specific information changes over time as the same issuer continues to file in an interactive data format.” More recently, in 2013, the Commission’s Investor Advisory Committee recommended that the Commission prioritize tagging of data that would provide increased transparency with respect to corporate governance issues, including portions of the proxy statement that relate to executive compensation. Although data tagging is already required in other contexts, today’s proposed rules would, for the first time, implement an interactive data format into a Commission rulemaking involving the proxy process and corporate governance.
At the same time, however, the proposal included questions that suggested significant ambilence about the requirement of tagging.
- Should we require that, as proposed, disclosure about the relationship between executive compensation and registrant performance be tagged? Why or why not? Would tagging the relationship of executive compensation to financial performance enhance comparability among different registrants? Alternatively, instead of requiring that the disclosure about the relationship be tagged, should tagging this disclosure be optional? If a registrant chooses to add more information to the prescribed table, should we require this additional information to be tagged as well, even if registrant-specific extensions are necessary?
The Chair had little to say on the issue, only that:
- Under the proposal, companies would be required to provide information in an interactive data format, XBRL, a requirement that would be phased-in for smaller reporting companies. Requiring the disclosure in interactive data format could increase the comparability and usefulness of the disclosures. I also encourage shareholders, companies, and other interested parties to weigh in on this and all aspects of the proposed rules.
The statement suggests ambiguity. In any event, the proposal represents the first time the Commission has actually proposed a rule that would require the tagging of the proxy statement. To the extent adopted, it will be a significant step forward with respect to tagging SEC filings.