With the 2018 proxy season and the first pay ratio disclosures quickly approaching, two noteworthy documents from CamberView Partners as well as the law firm of Watchtell, Lipton, Rosen, & Katz address suggested pay, governance and proxy disclosure strategies for 2018. Each guide provides several suggestions for changing or refreshing the CD&A in response to the 2017 proxy season and other developments.
- Cybersecurity: Given the major scandals due to data breaches in recent years, CamberView suggests providing a cybersecurity disclosure providing specific details of how the board oversees the universal risks to all companies operating in today’s environment.
- Environmental and Social: In 2017, environmental and social disclosure saw major momentum with investors. CamberView suggests providing some insight on how the board and its committees view and oversee sustainability-related issues. This includes a specific and separate section on Board Composition and Diversity, which CamberView specifically addresses as being an area of acute investor interest.
- Investor Engagement and Feedback: As has become a best practice for many companies, both Wachtell Lipton and CamberView urge companies to discuss their 2017 engagement process, including investor feedback and any actions taken in response to the engagement.
- Pay Ratio: Both Wachtell and CamberView offer advice on how to approach the first year of disclosures. Wachtell suggests adopting an approach that allows the company to use the same methodologies and approaches over the next three years, considering that investors are likely to compare the ratio year-over-year and substantial methodological changes will require greater disclosure in future proxies. Like the Center has suggested in the past, CamberView predicts a wide variety of styles of pay ratio which may or may not include additional context or company-specific factors. CamberView suggest governance teams be prepared to discuss the pay ratio with investors and the public outside the proxy disclosure as well.
- Compensation Metric Selection and Rigor: Wachtell characterizes the CD&A as an “opportunity” for companies to explain the connection between business strategy, the chosen metrics and performance, and it encourages companies to “take advantage of this opportunity and avoid leaving shareholders wondering about the rationale and drawing their own conclusions.” CamberView echoes the sentiments citing the continued interest by investors in how companies select metrics for incentive plans and how those metrics connect to strategic goals and whether the hurdles set for payouts are high enough.
- Executive Summary: Given the extreme length of many CD&A statements, Wachtell urges companies to make use of the executive summary to convey key messages to investors quickly.