The CHRO Association, representing the chief human resource officers of nearly 400 of the largest corporations globally, has submitted a comprehensive comment letter to the U.S. Securities and Exchange Commission (SEC) regarding the proposed rule to simplify filer status for public companies. Led by CEO Ani Huang, the association argues that the current complex system of classifying public companies creates unnecessary burdens and confusion, particularly for smaller and newly public entities. The proposal aims to streamline these classifications into two main categories: Large Accelerated Filers (LAFs) and Non-Accelerated Filers (NAFs), a move the CHRO Association largely supports, while also advocating for significant reforms in executive compensation disclosure.
The CHRO Association’s submission highlights the significant scale of its membership, which collectively employs over 10 million individuals in the United States, representing nearly nine percent of the private sector workforce, and a global workforce of 20 million. A substantial portion of these member companies, approximately two-thirds, are federal contractors, including those operating within the defense industry, underscoring their significant role in the national economy and security.
The Case for Simplification: Addressing Regulatory Complexity
The current SEC framework categorizes issuers into five distinct filer statuses: Large Accelerated Filer (LAF), Accelerated Filer (AF), Non-Accelerated Filer (NAF), Smaller Reporting Company (SRC), and Emerging Growth Company (EGC). Each status carries a unique set of regulatory and reporting requirements, leading to a convoluted landscape where many companies can qualify under multiple classifications. This overlap has been a persistent source of criticism, with SEC officials themselves acknowledging the complexity.
As far back as 2019, SEC Commissioner Hester Peirce famously noted that "the process of determining whether a company is an SRC and a non-accelerated filer, or an SRC and an accelerated filer, or outside of both categories is so complicated that even we at the SEC need diagrams to figure it out." More recently, Commissioner Mark Uyeda has echoed the sentiment, emphasizing the need to "re-align" filer status categories to better reflect the current public markets. The CHRO Association’s commentary aligns with these observations, pointing out that in 2024, a significant 51.9% of all issuers fell into overlapping categories such as NAFs that were also SRCs or EGCs.
The SEC’s proposed rule seeks to address this by consolidating these categories into two primary classifications: Large Accelerated Filers and Non-Accelerated Filers. The Accelerated Filer and Smaller Reporting Company statuses would be eliminated. While Emerging Growth Company status would remain, many of the regulatory accommodations currently available to EGCs would be extended to NAFs under the new framework.
Redefining Filer Tiers: Increased Thresholds and Extended Seasoning
A key aspect of the proposed simplification involves raising the public float threshold for Large Accelerated Filer status from the current $700 million to $2 billion. Furthermore, the "seasoning" period, which determines when an issuer becomes an LAF, would be extended from 12 months to 60 months after becoming subject to Exchange Act reporting requirements. This means a company that has recently undergone an initial public offering (IPO) would not be classified as an LAF for at least five years. Consequently, any issuer not meeting the higher LAF threshold would be designated as a Non-Accelerated Filer.
The CHRO Association finds particular value in the proposal’s intention to extend scaled reporting requirements, currently available to EGCs and SRCs, to all NAFs. These accommodations are anticipated to significantly alleviate reporting burdens for a broader range of companies. The SEC estimates that over 1,700 companies would newly qualify as NAFs, a substantial portion of which are currently classified as LAFs or AFs. This shift is seen as a crucial step in adapting regulations to the evolving economic landscape.
A Shifting Economic Landscape: The Need for Regulatory Adaptation
The CHRO Association emphasizes that the current thresholds for filer status have not kept pace with the significant growth and evolution of the U.S. equity markets. The definition for Non-Accelerated Filer status, established in 2005 with a public float threshold of $75 million, predates the substantial market expansion that has occurred since. In 2005, the total market capitalization of the U.S. stock market was approximately $17 trillion; today, it exceeds $75 trillion. Similarly, the JOBS Act, enacted in 2012, set the EGC revenue threshold at under $1 billion, a figure that has also seen significant inflation and market growth in the intervening years.
The association argues that while markets have redefined what constitutes a "small" issuer, regulatory frameworks have lagged behind. This disconnect has led to an increase in the cost and complexity of corporate disclosure, particularly concerning executive compensation. The CHRO Association believes that the proposed simplification will enable many smaller or newly public companies to redirect resources from burdensome reporting mandates towards growth initiatives, without compromising the quality of information provided to investors.
Reforming Executive Compensation Disclosure: A Long-Standing Concern
The CHRO Association has been a vocal advocate for reforms in executive compensation disclosure, having previously submitted comments during the SEC’s 2025 roundtable on the topic. Their stance is that executive compensation disclosure has become overly complex, repetitive, and ultimately difficult for investors to decipher, thereby undermining its intended purpose.
The association strongly supports the recommendations made in their prior comments and advocates for changes to executive compensation and other reporting rules for all issuers. They highlight that while exemptions or tailored disclosures are subject to the SEC’s reasoned judgment through the notice-and-comment process, companies may still face pressure from proxy advisory firms, activists, or consultants to maintain disclosures that the SEC deems unnecessary. The CHRO Association urges companies to critically assess such pressures, questioning whether they stem from genuine shareholder needs or potential conflicts of interest.
The Imperative for Principles-Based Executive Compensation Disclosure
Several aspects of the SEC’s proposal are seen as building upon key insights from the 2025 executive compensation disclosure roundtable. SEC Chairman Gary Gensler has characterized the current disclosure regime as a "Frankenstein patchwork," while Commissioner Uyeda has stressed that the goal of executive compensation disclosure is to inform investors about pay levels, not to dictate compensation determination processes.
Data presented by the CHRO Association illustrates the escalating complexity of executive compensation disclosures. An analysis found that the average Compensation Discussion and Analysis (CD&A) has ballooned to approximately 10,000 words. One roundtable panelist reported their CD&A had expanded from an average of five pages in 2000 to over 35 pages today. The proliferation of mandated tables and rigid definitions, such as "compensation actually paid," has forced companies to provide extensive supplementary explanations, further complicating transparency rather than enhancing it.
The CHRO Association argues that rigid, prescriptive disclosure rules and mandated tables hinder a company’s ability to clearly articulate its pay-for-performance philosophy. Forcing compensation details into a one-size-fits-all format limits the capacity of companies to effectively communicate the criteria used by compensation committees to assess the efficacy of their compensation arrangements. This standardized presentation can lead investors to a superficial understanding of the "what, why, and how" behind a company’s approach to linking executive pay with performance.
Key Provisions of the Proposal and CHRO Association’s Recommendations
The proposed rule would extend several scaled reporting requirements to all Non-Accelerated Filers, including:
- Disclosure for Three Named Executive Officers (NEOs): A reduction from the current requirement to disclose for five NEOs.
- Exemption from Pay Ratio Disclosure: Similar to current exemptions for EGCs and SRCs.
- Exemption from Pay Versus Performance Disclosure: Aligning with existing exemptions for EGCs and SRCs.
- Exemption from CD&A: Allowing NAFs greater flexibility in their executive compensation narratives.
- Exemption from the Additional Pay Versus Performance Table: A further simplification of performance-linked pay disclosures.
The CHRO Association supports these proposed accommodations for NAFs, viewing them as crucial steps toward reducing compliance costs and enhancing the utility of disclosures.
Pay Ratio Disclosure: A Costly Mandate
The association strongly supports an exemption for NAFs from reporting pay ratio information under Section 953(b) of the Dodd-Frank Act. They argue that there is no legitimate purpose for the data collection required by this rule. The SEC’s own estimates at the time of the rule’s adoption in 2015 projected annual compliance costs approaching $370 million. For all issuers, the CHRO Association continues to advocate for:
- Removal of the Pay Ratio Disclosure Requirement: Arguing it provides little value to investors and incurs significant costs.
- Elimination of the Median Employee Compensation Calculation: Identifying this as an overly burdensome and complex aspect of the rule.
- Focus on Meaningful Disclosure: Encouraging a shift towards disclosures that genuinely inform investors about compensation practices.
Pay Versus Performance: Prescriptive Mandates Hamper Clarity
Regarding Section 953(a) of the Dodd-Frank Act, which mandates "pay versus performance" disclosure, the CHRO Association criticizes the SEC’s 2022 final rule for its highly prescriptive nature. They contend that the rule, with its specific tabular disclosures, performance measures, and definition of "compensation actually paid," does little to help investors understand how executive pay is genuinely aligned with corporate performance. The association notes that the statutory text does not explicitly require such rigid implementation.
A survey conducted by the CHRO Association and the Society for Corporate Governance revealed that a majority of public companies have not been asked about this disclosure by investors. Nevertheless, compliance costs remain substantial, with most companies reporting spending 20+ hours on compliance, and some incurring costs up to $75,000 for outside advisors. Therefore, the association advocates for an exemption from this mandate for NAFs under the proposal. For all other issuers, they continue to push for a more principles-based approach by the SEC that aligns with the intent of Section 953(a).
CD&A: Towards a More Flexible Narrative
The CHRO Association supports providing companies with the flexibility to craft their own narrative disclosures regarding executive compensation. They cite a 2015 Stanford University Rock Center for Corporate Governance survey indicating that only 38% of institutional investors actually read the CD&A section of company proxies, with respondents generally finding it "overly boilerplate" and "not decision-useful." Since that survey, CD&A narratives have grown in size and complexity, further compounded by the implementation of mandates like pay ratio and pay versus performance, which can obscure the executive compensation picture for investors. The association therefore supports providing NAFs with an exemption from current CD&A requirements to grant them this flexibility.
Recommended Enhancements to Disclosure Provisions
While the proposal offers positive changes, including allowing NAFs to disclose compensation for three NEOs and exempting them from certain tabular requirements, the CHRO Association believes further improvements are warranted. They reiterate recommendations made in 2025 regarding tabular disclosure and the consolidation of NEO disclosure.
The association advocates for the consolidation of all current pay tables into two simplified tables:
- Summary Compensation Table – Total Direct Compensation (Target): This table would detail the annually awarded target compensation opportunities for the CEO and CFO, including base salary, annual and long-term cash incentive opportunities at target, and the aggregate grant-date value of equity awards. This would provide investors with a clear view of the intended total value of the annual compensation package, designed to be competitive if targeted performance objectives are met.
- Summary Compensation Table – Total Direct Compensation (Earned): This table would report compensation actually earned or realized during the year, including base salary, earned cash incentives and bonuses, and the value of equity awards at vesting. It would exclude non-discretionary benefits unrelated to annual pay decisions.
Furthermore, regarding NEO disclosure, the CHRO Association supports requiring disclosure only for the CEO and CFO. They argue that identifying the "top three" NEOs can lead to inconsistencies and difficulties in year-to-year and company-to-company comparisons due to fluctuating one-time awards or organizational changes. Investors and proxy advisory firms primarily focus on CEO pay, and disclosing compensation for executives beyond the CEO and CFO often adds complexity without significantly advancing investor understanding. The association points out that smaller public issuers already provide disclosure for three executives (CEO and the next two most highly compensated), and a clear requirement for CEO and CFO compensation across all issuers would meet investor demand and provide a focused picture of top executive pay.
Conclusion
The CHRO Association expresses its appreciation for the opportunity to contribute its views on these critical disclosure reform initiatives. They look forward to continued collaboration with the SEC as these efforts progress, aiming to foster a more efficient, transparent, and adaptable regulatory environment for public companies. The proposed simplification of filer status and the call for more principles-based executive compensation disclosures represent significant steps toward aligning regulatory requirements with the realities of today’s dynamic capital markets.
