Recent trends in proxy statements

by Cydney Posner

It just isn’t proxy season without some kind of account of the latest trends in proxy statements, so here’s one from CFO.com.

The first data point comes as no surprise: proxies are getting longer, providing more graphics and more detailed disclosure, some of which is not even mandated by the SEC or the exchanges. Data from Equilar cited in the article indicated that the longest CD&A in the proxies of those S&P 100 companies came in at over 18,000 words. According to Equilar, for the S&P 100, CD&As increased from an average length of about 8,900 words in 2012 to about 9,400 words in 2016, representing an increase of about 5.6%.

Increasingly, although not required by the SEC, companies are also devoting proxy space to discussions of their shareholder engagement programs. According to the article, among the S&P 100, just 12% reported on their shareholder engagement efforts in 2012, while by 2016, 63% included that disclosure. In addition, from 2012 to 2016, the percentage of the S&P 100 disclosing changes made in response to shareholder engagement efforts grew from 14% to 42%. The author attributes this trend to the advent of say on pay, mandated by Dodd-Frank, and related efforts “to mollify shareholders,” as well as the rise in shareholder activism. In particular, when companies have performed poorly on their say-on-pay votes or face criticism from proxy advisory firms or others for pay or governance issues, noted one commentator, “‘it’s generally expected that they will go beyond [merely] discussing the scope of their engagement’ with shareholders.” The article indicates that, among the S&P 100, the percentage of companies that specifically disclosed their responses to say-on-pay votes increased from 17% in 2012 to 32% in 2016.

SideBar:  Proxy advisory firms often expect to see discussion of shareholder engagement and changes implemented as a result where the preceding say-on-pay vote was below 70% in favor.  In some cases, they may also expect to see discussions of engagement in the event that a shareholder proposal receives a high favorable vote.

Proxy summaries are also increasingly in vogue.  Among the S&P 100, in 2012, only 39% included proxy summaries at the beginning of their proxy statements, but by 2016, that proportion had increased to a whopping 79%. More companies are also focusing on proxy aesthetics, making greater use of color in their proxy statements. In 2016, the percentage of the S&P 100 that used color in their CD&As reportedly increased to 77% from 48% in 2012.

Another feature that is increasing in prominence is the checklist of typical forms of executive compensation, indicating which forms the company uses and which it avoids. Among the S&P 100, the percentage of companies presenting these comp checklists increased from  5% in 2012  to 66% in 2016. According to one commentator, this feature is designed to allow the company “‘to highlight strong governance practices and design features while also clearly confirming for proxy advisors and shareholders that the company does not engage in poor practices.’”

 

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