The average word count for large companies in proxy Compensation Discussion and Analysis sections of the proxy dropped to 9,359 words in 2018, down from 9,506 in 2017, according to a recent Equilar report. The study, which highlighted ongoing shifts in CD&A composition and disclosures in the Equilar 100 – the 100 largest companies by revenue in the last five years -- included the following findings:
- Proxy Summaries. The percentage of companies including a proxy summary increased from 64.6% to 75.8% between 2014 and 2018, though it remained flat from 2017 to 2018.
- Table of Contents. The prevalence of a CD&A table of contents has increased markedly – from 24.2% in 2014 to 36.4% in 2018.
- Pay Mix Graphs. The number of companies that used a pay mix graph declined 6% to 78.8% in 2018. Meanwhile, 46.5% of companies used an alternative pay calculation graph (realized vs realizable pay, for example). This remained effectively flat over the 2014-2018 timeframe.
- Supplemental Charts. As opposed to the “alternative pay graphs” mentioned above, supplemental charts regarding pay and performance were used by the vast majority (85.7%) of the Equilar 100, including Center Subscriber Caterpillar, which was highlighted for its innovative chart on annual incentive performance measures and results (page 39).
Insights from RR Donnelley added color to the report findings, including the following:
- Perhaps ironically, proxies continue to transition from a compliance focus to a strategic communication document, while investors increasingly view the proxy as a reference document rather than a reading document. As such, there is an increased need for efficient navigation, straightforward text, and appealing visual elements or graphical displays.
- Passive, indexed investors are less focused on overall investor relations communications than active investors and therefore encourage companies to use the proxy as a unifying document that includes all the information an investor needs to make an informed voting decision.
- Careful disclosure of the links between pay and business strategy – specifically, how selected metrics tie into strategy and clear rationales for changes such as new metrics - are vital to mitigating a negative vote recommendation from a proxy advisory firm.