Most effective compensation disclosure
GE
‘The question is, is anybody reading it?’ says GE corporate and securities counsel Chris Pereira when asked how his team addressed the creation of what became the number one corporate compensation disclosure in the 2009 proxy season.
‘Most people read their mail over the trash can nowadays,’ Pereira continues, asking rhetorically whether anyone would bother with a 100-page proxy or a 30-page compensation discussion and analysis (CD&A). ‘People just don’t have the time, interest or attention span for something like that – but the CD&A is probably the core piece of the proxy.’
Pereira says he did what writing instructors and speech writers have been telling students to do for years: he started with the audience. He asked himself what they want and what he can offer them, and realized that it’s not about him – it’s about them.
Clear communication is a hallmark of the GE style, says Pereira. ‘We aim to eliminate the legalese and use plain English. If you don’t use plain English, you probably won’t have a long career at GE; when something is not readable, you’ll hear about it from senior management.’
Aside from the clarity, however, what made GE’s compensation disclosure different, according to Pereira, is that the company looked at the world around it and the issues of the day. ‘We wanted to tell people who were outraged at what happened at financial institutions that it was different from what happened with us,’ he explains. ‘To show it didn’t apply to us, we tried to come up with reasons why our contracts are really not comparable with some of the more extreme programs out there.’
In order to do that, plenty of detail was needed, and the judges lauded GE’s efforts at achieving this. ‘The key to this disclosure is that it not only thoroughly explains the actual compensation, but also gives a clear presentation of the reasoning the board used when setting the pay structures,’ they said.
Pereira says that as he worked on this section, he went back to the basic approach: what is it people are looking for? ‘Most investors care about CEO compensation,’ he notes. ‘We have two and half pages purely of discussion of Jeff Immelt’s performance.’
This, too, was picked up on by the judges, who stated that the report ‘gives perhaps the best explanation of the relative performance of all named executive officers, allowing the reader to make his/her own decision about how effectively pay was tied to individual and overall management performance.’
