Proxy statements that show innovation in content and format
How do investors read proxies? Front to back, back to front, skipping ahead to certain sections? When RR Donnelley surveyed institutional investors about how they read proxy statements, most said they go straight to the compensation discussion and analysis (CD&A) and its executive summary, if there is one.
That and other findings point to the CD&A continuing to be the most crucial part of the proxy statement for the foreseeable future. Improving your proxy, and the CD&A in particular, means looking to peers as well as to innovators whose proxies ‘increasingly are transitioning from compliance-focused documents to more visually appealing and compelling communications pieces,’ says Ron Schneider, director of corporate governance in RR Donnelley’s global capital markets group.
Boston Properties: facing up to say on pay
‘Starting with the first paragraph of its CD&A executive summary, Boston Properties tackles last year’s poor say-on-pay vote head-on,’ says Schneider. ‘The company goes on to discuss in great detail the scope of its post-meeting engagement efforts with significant investors, detailing the feedback it gained and the resultant actions it took.’
Coca-Cola: breaking with tradition
It’s clear Coca-Cola’s legal team works hard on the proxy statement, every year introducing innovations to help communicate the company’s governance and executive compensation programs – which is fortunate, considering the opposition Coca-Cola has had to confront this year. In the end, shareholders that had called Coca-Cola’s pay plan an ‘outrageous grab’ were defeated.
This year’s proxy begins with a letter co-signed by the whole board. Then, instead of a typical chairman’s letter, there’s a Q&A with chairman and CEO Muhtar Kent – a first in US disclosure, according to Iain Poole, a disclosure consultant with SEC filing specialist Labrador. ‘Such interactive disclosure will become more common as peers follow Coca-Cola’s lead and move away from boilerplate letters.’
ExxonMobil: getting investors to think for themselves
ISS has repeatedly urged investors to vote against ExxonMobil’s executive compensation plan, which helps explain why the oil giant saw its say-on-pay vote sink to just 71 percent in 2013, dangerously close to the 70 percent threshold for withhold votes in 2014. That makes the CD&A all the more important, so since 2011 ExxonMobil has issued an executive compensation overview in addition to its proxy statement. ‘It very visually and clearly explains why the company’s pay programs are appropriate and support its business strategies and efforts to grow shareholder value,’ Schneider remarks.
GE: pioneer of simple
In 2011 GE was the first company to introduce a proxy summary, now emulated by many others. Wendy Fried, stakeholder communications strategist at Addison, says it’s especially strong this year: ‘It presents information in a manner that’s both efficient and engaging.’ GE’s visually appealing infographics and high-quality headshots quickly convey who the directors are, what committees they serve on and various interesting demographics.
Fried also admires GE’s simple diagrams showing board leadership structure and, further on in the document, the company’s year-round shareholder engagement program. Another noteworthy element is the detailed description of each named executive officer’s accomplishments over the past year, accompanied by photos.
Honeywell: balancing text and graphics
Honeywell’s CD&A executive summary starts with a singular ‘summary of compensation decisions’ that briefly states whether – and how – each pay element changed during the year. This is another CD&A with helpful graphics throughout. Fried particularly likes one comparing Honeywell’s performance with that of its peer group, ‘because it conveys a lot of information in a simple way.’ She also likes the sections on annual and long-term incentives, which have a good balance of text and graphics.
Merck: acclaimed scorecard
For a sense of how good Merck’s latest proxy statement is, look no further than the title of a video by TheCorporateCounsel.net’s Broc Romanek: ‘23 cool things about Merck’s ’14 proxy statement’.
Merck’s legal team seems to have mastered communicating how strategic priorities translate into operational terms and executive compensation. For example, a Company Scorecard, which is updated each year, elegantly measures progress and performance. A recurring theme, it’s clearly at the center of the company’s incentive program.
‘Brevity is highly valued among frequent proxy readers,’ says Nancy Mentesana, a disclosure consultant at Labrador. ‘Merck’s scorecard illustrates the weight of various elements as well as the outcome, using just one page of the CD&A.’ That means it could be used beyond the proxy as a stand-alone tool.
Microsoft: concise yet comprehensive
According to RR Donnelley, the average proxy statement from even a mid-sized US company has crept up from 30 to 70 or more pages over the last decade. Microsoft, one of the world’s biggest firms, bucked the trend with a 52-page statement for its June 30, 2013 year-end statement. ‘We believe Microsoft’s investors appreciate the relative brevity as well as the clarity of its disclosures,’ Schneider comments.
Interestingly, clicking on the link to Microsoft’s online proxy statement doesn’t open a PDF as you would expect from any other company. Instead, it opens the document in the company’s newly rebranded Office Online app.
Mondelēz International: establishing a whole new identity
Last year was the first full year for Mondelēz as a global snack food company after Kraft Foods spun off its grocery business under the new name. The 2014 proxy is Mondelēz’s second since the divestiture and it’s strong in all key areas, says Schneider. ‘A quick look at the front and back covers reveals a very creative showcasing of the group’s major brands, revenue category breakdown, global footprint and high-level strategic messaging,’ he notes.
Pfizer: using layout to highlight key information
All through Pfizer’s proxy, the use of ‘call-out’ information keeps a constant emphasis on key areas of interest to shareholders, from political contributions to how to get access to the lead independent director. ‘The authors at Pfizer clearly understand what their readers are looking for,’ says Mentesana. ‘Separating this information out for the busy reader also ensures that the firm’s story is heard.’
Prudential Financial: pushing boundaries
Prudential’s latest proxy statement stands out for several reasons, starting with a CSR message on the first page describing an incentive program that has seen 500,000 trees planted on behalf of registered shareholders who voted their proxies. Fried says Prudential’s CD&A ‘goes the extra mile’. For example, it takes readers step-by-step through the formula for annual incentive awards, then summarizes it in a table. Fried also praises Prudential’s proxy summary: ‘It gives investors a thorough snapshot of annual performance and pay while being very concise.’
As well as Prudential’s traditional proxy, it’s worth checking out the interactive online version, with tiles to navigate instead of a typical table of contents. ‘The past few years have witnessed an explosion of innovation and enhancement in US proxies, and Prudential has been at the heart of this explosion since at least 2011,’ Schneider says. He describes how the company transformed a bland disclosure document into a ‘selling’ piece aimed at a range of different readers, including employees and investors of all types in addition to regulators.
United Technologies: cutting-edge disclosure
‘Over the past few seasons United Technologies (UTC) has been simplifying and streamlining its CD&A, and it took another big leap this year,’ says Fried. In particular, UTC does an excellent job at explaining the logic behind its compensation decisions. ‘One thing that stands out is the alternative pay methodology discussion,’ Fried explains. ‘Not only does the company explain in detail how realizable and realized pay differ, but it also tells us how its compensation committee makes use of these concepts in evaluating pay.’
The use of graphics in UTC’s CD&A is especially well thought out, says Ron Warren, disclosure consultant with Labrador, including in the realizable compensation section mentioned above. Elsewhere, a Venn diagram illustrates the different components of the compensation program. Add to that an expanded risk management section, and UTC shows a ‘cutting-edge disclosure policy’, Warren says.
