Executive compensation is an often complex, technical topic that investors must first understand, in order to support it. There is an array of compensation vehicles, performance metrics and targets that may be employed, and there certainly is no “one size fits all” to this topic. While these compensation details are “disclosed” in proxy statements, they often aren’t explained sufficiently to help investors understand, appreciate and support them – particularly when confronted with negative proxy advisor Say on Pay recommendations.
“Telling your Compensation Story” is a checklist of best practices we have gleaned from reviewing thousands of client proxies over the years – and witnessing varying degrees of investor support. It is written from the perspective of investor informational needs and preferences, and is not a replacement for meeting SEC disclosure requirements and appropriate legal review.
In this article, we present a range of considerations that, if reviewed annually during the proxy disclosure planning process, will both mitigate risks of investor misunderstanding, and thereby promote your success. Specifically, we discuss:
- Voice of the compensation committee
- Compensation program context
- Organization, flow and navigation
- Formulaic versus discretionary programs
- COVID pay impact
- Performance metrics and link to business strategy
- Increasing use of ESG and other non-financial metrics
- Investor engagement and input
- Responding to sub-par votes
- Peer companies and their rationale
- “non-standard” pay practices and greater need for explanation
- Use of design and company branding to increase impact and engagement