THE CFA Institute, the professional body that bestows the Chartered Financial Analyst designation on portfolio managers and analysts, has released a template for company executive compensation reports that it hopes will make annual pay disclosures “clearer and more relevant to investors.”
The template for the compensation discussion and analysis (CD&A) section of companies’ proxy statements (see embed below) was developed by a 12-member working group made up of governance experts at investment firms, companies and law firms.
“Unfortunately, many public companies still provide CD&A disclosures that are overly complex, written in a legalistic style, and difficult to understand,” says the working group in its introduction. “Investors and other stakeholders are looking for much needed improvements, and understandably so.”
Alignment with shareowner interests
The CFA Institute says recent surveys of its members show that 74% of respondents say they regularly use compensation information in their investment decisions as it helps them assess management’s alignment with shareowner interests.
To help investors navigate pay disclosures, the working group encourages companies to include hyperlinked section headers in their CD&As. At some point, says the group, companies should use XBRL to tag the data.
The template includes a list of companies that provide CD&As the group considers good examples, including American Express Company, Apache Corporation, Eli Lilly and Company, Greatbatch Inc., Intel Corporation, Morningstar, Stericycle and UnitedHealth Group.
“As many stakeholders and markets around the world continue to scrutinize executive pay practices, we hope that this project will improve understanding, serve as a global model for improved investor communications on this important issue, and elevate compensation disclosure beyond an exercise in legal compliance,” says the group.
The template is embedded below. The complete document can be downloaded at http://www.cfapubs.org/doi/pdf/10.2469/ccb.v2011.n1.1