Three-quarters of the S&P 100 now include non-GAAP financial reporting in their proxies, according to a recent Equilar report on evolving trends in proxy design. The report, titled "Innovations in Proxy Design" and available on the Equilar website, looks at proxy statements and CD&As for the S&P 100 on an annual basis over the past five years and tracks trends and new developments in proxy disclosure, such as:
- Use of proxy summaries (79%). Given the ever-increasing length of CD&As (up 5% to 9,403 words in 2016), proxy summaries have become critical to an investor-friendly proxy; Dow Chemical was featured for their effective four-page executive summary, which reviewed company performance, shareholder engagement, resulting compensation and governance changes.
- Compensation program checklists (66%). Often referred to as "do's and don'ts," the checklist has gained in popularity when summarizing both compensation and governance best practices; DuPont was featured as a particularly clear example which was included at the front of its Compensation Discussion & Analysis, setting up the broader pay discussion..
- Pay for performance graphs (25%). The use of supplemental graphs not required by SEC regulations has risen to nearly 90% of companies, including nearly a quarter of companies that now use pay and performance graphs and 40% of companies that use alternative pay graphs (such as realized or realizable pay). United Technologies Corporation was cited in the report for its use of a table showing both realized and realizable pay alongside Summary Compensation Table pay versus TSR for a 3-year period.
- Non-GAAP Reporting (75%). Despite the increase in commentary by the SEC and proxy advisors on the use of GAAP-adjusted performance metrics, three-quarters of companies now use adjusted measures in their proxies. One approach (see Biogen, Inc. for an example) is to provide GAAP and non-GAAP measures side by side for ease of reconciliation.
- Compensation Risk Oversight (94%). Although risk mitigation disclosures have been common for years, renewed attention to risk in incentives after the Wells Fargo scandal may bring more detail to these disclosures in the future. The survey highlighted Boeing for its comprehensive risk management disclosure, including an updated clawback policy and specific design features of the incentive plan.