NOW that US shareholders have a formal way to express their opinions on companies’ executive compensation practices, forward-thinking governance and investor relations professionals might want to think about using the web to tell their companies’ compensation stories.
While most directors, governance professionals and IROs will probably be focusing their attention on trying to spruce up their mandatory proxy statement disclosures, the truth is that relatively few investors will ever read the information – as little as 0.5% of them if your company is using the notice-and-access model for online delivery.
And who can really blame them when average compensation disclosures run to more than 5,000 words, have language as dense as academic texts, and are posted online in hard to use formats like image-based documents and big PDF files? Even institutional investors don’t really read the things. That’s what they pay proxy advisory services to do.
No, it’s safe to assume that when most investors go to vote, they will be basing their voting decisions on something other than the polished prose your compensation committee has spent hours preparing. If anything, most shareholders will be voting based on what they’ve read, heard or seen from the media, blogs, their friends on social networks, or perhaps services like MoxyVote.
All is not lost, however. There are ways that companies can use the web to get their compensation stories to their shareholders. They range from the obvious and simple to the less obvious and more complex. But if you’re really serious about making sure investors understand your board’s pay practices, you should consider them all.
Add an “Executive Compensation” page to your website
For all the hoopla about executive compensation it’s bizarre that when people go to company websites and click on “Corporate Governance,” they almost never see a page called “executive compensation.” There’s the board of directors bios, the guidelines, the committee charters, the code of conduct, and possibly a bunch of other PDFs. But if you want information about CEO pay, you’ll have to go digging around the site for a PDF or an EDGAR filing.
This is not good for two reasons:
1. It looks like you don’t want people to know. Everyone knows that executive compensation is the single biggest governance lightning-rod, so you might as well reflect that reality by prominently addressing the topic. Ignoring the subject gives the impression that the board is either hiding something or has no clue what shareholders want.
2. The information is less visible to search engines. When a shareholder receiving a notice-and-access advisory in the mail goes online to vote, there’s a pretty good chance they’re going to Google something like “ACME Corp. Executive Compensation.” If the only references to “executive compensation” on ACME Corp.’s website is in a PDF or SEC filing, it’s unlikely to rank as high as other sources.
Let me illustrate. I just Googled “Merck Executive Compensation” two minutes ago and this is what I got:
The top results are all articles from third-party sources with rather loaded headlines … “$36 million” … “Private Jet” … “Helipad”…. No guessing what Jane Average is going to be thinking when she signs into Broadridge’s Proxyvote.com to cast her ballot!
Now here’s what I get when I do a similar search for “IBM Executive Compensation”:
The top Google result goes to the Executive Compensation page positioned prominently in IBM’s corporate governance section. The second and third Google results go to the company’s proxy statements because IBM is one of the few companies that publishes its proxies in the web native HTML format.
IBM’s executive compensation page isn’t great. It just provides links to the compensation disclosures in the latest proxy statement. But it’s effective for search engine visibility and it demonstrates that IBM’s board at least recognizes that executive pay is something shareholders are interested in.
Your executive compensation page could consist of something more concise and relevant, a summary of your compensation practices or perhaps a fact sheet. Some advisors are recommending that companies add an executive summary in front of their Compensation Discussion & Analysis (CD&A) to appeal to retail investors. That seems pointless to me if almost no one is going to read the proxy anyway.
If you really want real people to read the information, don’t put it in the proxy statement. Sounds like heresy and recklessness, but that’s just how it is.
In any event, the summary you provide on the “Executive Compensation” page should provide a link to the full compensation report in the proxy statement, as per the SEC’s guidance for summary information on company websites.
Use video to explain executive pay practices
At the risk of sounding like a broken record, let me repeat that despite the many hours compensation committees invest in them, only a small group of governance die-hards will ever read proxy statements. This is the era of blogs, Facebook, Twitter and YouTube, and your gray proxy treatise doesn’t stand a chance against these other engaging online sources.
To grab shareholders’ attention, you’ll need to adopt new media tactics. Video is an excellent way to communicate your company’s executive compensation practices. It is a much more powerful medium than print and it can give the appearance of greater accountability. Here’s an interesting study on how video can influence investors’ perceptions of accountability.
Video lets shareholders virtually look the chair of the comp committee in the eye, and for many it will be the closest they get to ever meeting the directors who supposedly represent them. This is an important point, because according to a survey conducted by the SEC a couple years ago (PDF 711KB, 170 pages) not knowing directors is the second-most common reason retail investors don’t read proxy statements.
PotashCorp, which has won several awards for its governance communications over the years, makes effective use online video to communicate its board’s approach to compensating executives.
On its website’s Executive Compensation page, you’ll find a link to a video Q&A with board chair Dallas Howe and compensation committee chair John Estey. In it they answer 13 questions about PotashCorp’s executive compensation practices and voluntary adoption of a say-on-pay vote.
This is the type of content directors need to produce if they want to connect with today’s online audiences and demonstrate that they’re more than faded mug-shots on a printed page.
Solicit and post feedback from shareowners
One of the most powerful ways of communicating accountability is to ask shareholders for their opinions and to be willing to publish their feedback no matter how negative it may be.
Broc Romanek at TheCorporateCounsel.net has done the definitive piece on shareholder compensation surveys, so I won’t go into to all the details here, suffice to say that surveys allow boards to solicit input from a broad range of shareholders. If a say-on-pay vote doesn’t go as well as the board hopes, a survey can tell them what specifically shareholders did not like.
Towers Watson sells a survey tool for say-on-pay votes, which it says “offers a simple, cost-efficient way for companies to engage with shareholders and understand what they’re really thinking.”
However, if you’re going to ask for feedback, then you should be prepared to publish the results for all to see. That’s the simplest way to demonstrate that shareholder input is in fact taken seriously, which will encourage more shareholders to get involved.
Last year, Canadian telecommunications company BCE Inc. invited shareholders to provide input on say-on-pay via a survey. The company promised to post a summary of the comments. It’s almost a year later and no comments have been posted, and there’s no explanation why. It’s unlikely that shareholders will bother providing feedback in future.
Shareholder forums are another option for getting shareholder feedback. However, forums require directors to be involved and shareholders to be identified if decorum and accountability are to be achieved. This is why Broadridge’s shareholder forum product will never work. Shareholder forums also are likely to be too onerous a burden on directors.
Monitor and engage in social media
When conversations about companies happen today, they often occur on social networks like Facebook or Linkedin, messaging sites like StockTwits and Twitter, content sharing sites like YouTube and Slideshare, message boards, blog networks like Seeking Alpha, and on companies’ own blogs.
Boards and corporate secretaries should monitor all of these channels for discussions about their companies. And they also should be prepared to engage with people on them, or at minimum use these same channels to distribute their governance communications.
The video of the compensation committee chair can be uploaded to YouTube and then embedded on the company’s Facebook page, shared on Twitter and posted on the company’s blog. Doing so takes the information to where the people are, rather than hoping they will come to the company’s website.
Donald Delves, president of The Delves Group, an executive compensation firm that consults to boards, makes the point well:
Commentators are no longer limited to major publications, broadcast networks and mass media Web sites. Now there’s the blogosphere, Twitter and Facebook. In addition, just a Google-search away are Web sites of special interest groups, such as unions.
Companies must ensure that they have a voice in popular venues, lest their pay programs be discussed without their side of the story.
The days of expecting press releases and legally crafted proxy statements to speak for the company are over. Annual reports are becoming glossy antiques. In this new era of corporate communications, companies will have to hire and train individuals with the skills needed to get the message across far more ecumenically than ever, using multiple channels that might include social networking media.
I don’t mean to belittle the importance of companies’ proxy statements as disclosure tools – they most certainly are essential – but if reaching a broader audience with the company’s compensation story is one of your board’s objectives, then you have to start using the web.