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What is Compensation Disclosure?

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  • Written By: Michelle Burton
  • Edited By: C. Wilborn
  • Last Modified Date: 10 September 2016
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Compensation disclosure is a document that provides details about company salaries and benefits. Any given company or organization’s annual report may include compensation disclosure, but for companies that operate in the public sector in many countries, disclosure is required. Also called "salary disclosure," the goal for compensation disclosure is to make the public sector more open and accountable to taxpayers.

Compensation disclosure is a way to monitor executive salaries in large companies around the world. Based on disclosure regulations, many small business owners are not required to provide a disclosure statement to the government. Executive disclosures may vary from country to country, but in general, they include three areas: retirement plans and other post-employment benefits and payments, the past three years' compensation, and any equity interests that are part of the executive's compensation.

Laws allow governments around the world to request director and nominee disclosure. This includes details about the qualifications of incumbent directors and director nominees, as well as shareholder nominees. The statement should include the disclosure of skills, qualifications, experience, and other qualities that determine the person’s ability to serve as a committee member or director under the company’s current business structure.

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Compensation disclosure reaches beyond just money; it also serves as a risk statement. Most governments’ disclosure laws state that investors and taxpayers have a right to be informed about the corporate governance practices of companies. This means that companies must provide a statement, within the disclosure, about the company’s leadership structure and the reasoning behind it. In a nutshell, companies must explain why it believes its current leadership structure is the best structure for it at the time the statement was released.

Any attempt to mislead the government and/or the public by misrepresenting facts or figures in a disclosure is considered fraud. In many cases, disclosure fraud occurs when it comes to disclosing figures. There have been a number of well-publicized cases of disclosure fraud in recent years.

It is important to note that compensation disclosure has several different meanings. On an individual level, compensation disclosure is the same as a salary history. Most employers will request a salary history from prospective employees. In addition, some employers may require employees to sign a compensation or salary nondisclosure agreement. This is basically an agreement that prohibits the employee from discussing his or her salary with other employees.

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