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When it comes to the compensation discussion and analysis (CD&A) in proxy statements, things have come a long way over the past several years, but there’s still work to be done. It’s only going to get more challenging for issuers to prevent the CD&A from getting longer, as more disclosure requirements are on the way.
This will likely exacerbate the problem of add-ons, where issuers insert new material into last year’s CD&A template, but don’t take out much. Companies are loathe to a change in format, says Sharon Podstupka, Principal in the New York office of Pearl Meyer. “They fear it’s going to have to be reviewed by a committee, the board, or vetted by an outside attorney,” she notes.
In our interviews with sources, Corporate Board Member came up with some guidelines to follow this proxy season and beyond.
Start early (next year)
While this approach might be too late for this proxy season, it’s a good strategy. Regardless, there’s a myth out there, especially for smaller companies, that there’s not enough time to get a clear, best-practice CD&A delivered, says Podstupka. “That myth gets debunked in the timing.” For a company whose fiscal year coincides with the calendar year, that means starting in July or August.
Podstupka says questions for companies to pursue include: How can we continuously improve this document? What are the strategies we need to think about over the next three to four months to help us make this a better document when we are ready to start drafting? “That way, the various departments aren’t scrambling to pull it all together during proxy season,” Podstupka says.
Involve the communications team
“Issuers that have measurably improved the clarity of their CD&As are the ones that transitioned the primary authorship to communications experts,” says Podstupka. Attorneys are critical, she notes, “but from a primary authorship perspective, the tone and style is just not what the investor market wants.”
About 79% of companies reported using internal corporate or human resources communications personnel according to a 2015 survey of 93 issuers by Pearl Meyer. About 43% used external graphic designers, and 37% relied on external writers. Almost 90% of issuers say reader friendliness is as important as technical accuracy according to Pearl Meyer.
Dissect the draft
In terms of trends in content development, Pearl Meyer’s survey indicates 86% of boards or compensation committees requested making the CD&A easier to read and understand; about 49% suggested including an executive summary; and 42% asked for more charts and tables.