No matter where you are right now in your current proxy drafting process, take the time to review these important tips from last week’s Society for Corporate Governance Conference. There are important questions you should be asking yourself throughout the process.
The big picture
The proxy is an opportunity to tell your company’s story to investors. As you set out to tell this year’s story, think about how to convey it most effectively.
- Is it time for a redesign?
- What information should be emphasized or clarified through graphics and images?
And when it comes to the proxy summary:
- What does the board want to focus on the most—performance, governance or shareholder engagement?
- Can investors decide how to vote based on the information provided in the proxy summary?
- What’s new this year? What has changed?
Go above and beyond the requirements:
- What issues are investors concerned about? Address them head on.
- Are there practices where your company differs from the rest? Don’t assume that investors are not paying attention. Instead, explain why.
And the focus these days is on…
- The board. We cannot emphasize this enough. Investors want to know all the details as well as the board as a whole: overall diversity, director qualifications, how they will be replaced, how they are evaluated and what kind of attendance your board meetings are getting.
- SEC rules. While SEC leadership is undergoing change, the outgoing administration’s focus on the following topics means the following issues remain in the spotlight: pay for performance, clawback policies, pay ratio disclosure, golden leash disclosure and hedging by employees against declines in company stock.
- CEO/Board Chairman roles. Are they split or combined? Explain why it works for your company.
Did you know that these proxy elements are often missed?
A number of elements are often neglected in proxy statements and we have included some below. While several items appear quite simple, others may take a little more thought. Surely you’ve ticked all your boxes, but take a look on the off chance that something may have slipped through the cracks!
- In the CD&A, company policies and compensation decisions should be clearly linked.
- Incentive compensation award targets should be disclosed, as well as an explanation of how these targets are connected to payouts.
- Explain what your company has done in response to last year’s say on pay vote.
- Include properly calculated deadlines for shareholder proposals.
- Don’t forget to include all of the background information required for directors and executives including main jobs and positions on public boards of the past 5 years as required by Item 401.
- Note clearly that the information is available on the internet, and where to find it.
Pay extra attention to your CD&A
This is where clear analysis puts your disclosure (tables!) into context. There are a number of elements to remember, including a clear explanation of your program’s objectives and awards, carefully explaining each item.
Some practical advice: be careful about how you use the word ‘benchmark’ when it comes to compensation practices. This is not the same thing as a third-party ‘survey’ used to gain general understanding of current compensation practices. In the case of ‘benchmarking’, you are required to include the names of companies that make up the group.