In a previous blog (“ABA Discusses Four Hot Topics”) I promised to provide further information on the key topics discussed at the American Bar Association’s Employee Benefits, Executive Compensation & Section 16 Subcommittee. However, I left one important topic off the list: a report presented by Ron Schneider of global financial communications giant R.R. Donnelley on its “Groundbreaking Investor Survey: What You Need to Know Before Drafting Your Next Proxy.” The report contains several important insights that all of us who work in this area ought to consider.
Based on the information in the survey, we added the following new item to the outline we prepare and update each year for clients for use in their pre-proxy preparations. (Most of the items are not new or insightful, but we believe it just helps to have a list of items to consider.)
12. Consider the perspective of the institutional investors that will review your proxy statement (which may be different than you think). Among the findings of a recent survey by financial communications giant R.R. Donnelley were the following:
- Most institutional investors review proxy statements online and skip to one or more specific sections (usually, the summaries). Therefore, companies should focus on on-line readability and navigability.
- Institutional investors reported that pay for performance alignment was the most important factor for making voting decisions. However, many investors indicated that pay-for-performance and performance measures disclosure often is hard to understand (and sometimes seems designed to obfuscate). Resist the urge to make your disclosures overly complicated.
- Director independence and the company's overall corporate governance profile closely follow pay-for-performance in importance to institutional investors.
- Proxy advisor recommendations were not the greatest influence on institutional investors' voting decisions.
For your consideration.