A low (or failed) say on pay vote often spurs innovative disclosure from companies regarding topics such as executive compensation philosophy, shareholder engagement and changes made to the pay program, as highlighted by a recent guide from communications firm Argyle. Noting that ISS and Glass Lewis expect additional disclosure when say on pay proposals receive less than 70% or 80% support respectively, the guide provides sample disclosures on a variety of topics, including the following (please see guide for the examples):
- Proxy Summary. Companies are increasingly providing a brief discussion of executive compensation in the proxy summary rather than limiting it just to the CD&A. This puts pay and performance alignment front and center in the proxy disclosure as well as tying compensation to business goals and achievements.
- Shareholder Outreach. Companies such as Newmont Mining, American Express and McDonald's provide robust disclosures on shareholder engagement, both in response to shareholder concerns but also routinely as a "best practice" in the CD&A.
- Changes Made. Clear disclosure of any changes made in response to shareholder feedback is critical; such disclosure is particularly effective when presented in a visually impactful graphic or over a multi-year period.
- Letter From Compensation Committee. Companies such as Coca-Cola, CVS Health and Southern Company have adopted the growing trend of including a letter from the Compensation Committee (or Chair) to shareholders explaining the rationale behind pay decisions and the Committee's process for considering pay throughout the year.
- Rigor of Goals. Investors and proxy advisors are increasingly focusing on the rigor of incentive targets. Companies such as Target provide clear disclosures on how short and long-term plans have paid out over time, while others look at how goals have evolved over time (the guide includes a particularly interesting disclosure from Cognizant that shows their goals versus payout over a three year period).