Say On Pay: CFA Develops New Compensation Template

CFA Institute has brought out a compensation discussion and analysis (CD&A) template to help companies better communicate their pay policies to shareholders.

A fresh approach to CD&A reporting is needed because many compensation reports are too long, too complex and focus on regulatory compliance ‘to the detriment of conveying the company’s compensation story in a concise and understandable manner,’ says CFA Institute in the template.

The template is designed to allow companies to explain the compensation policies in a concise and simple manner while complying with SEC requirements concerning CD&A reporting.

CFA Institute encourages companies to use hyper-linked headers in their CD&A disclosures to make navigation easier, and also consider XBRL-tagging the data the disclosures contain.

Investors are keen on more informative and easier to read CD&A disclosures, according to the organisation.

Last May, a survey of CFA Institute members found 74 per cent of respondents regularly use compensation information to help them make investment decisions.

In a later survey, however, only 20 per cent of respondents said CD&A disclosure from US companies was transparent and understandable.

‘The goal of this project was simply to build a better model by which companies could tell their unique stories of how they link pay to performance,’ explains Matt Orsagh, director of capital markets policy for CFA Institute, in a blog post.

The initiative has taken on a new importance in the last week, following the difficulty US companies have had over say-on-pay votes at their annual meetings.

Over the last seven days, four companies have seen their management’s recommendation for a triennial say-on-pay vote rejected, with a majority of shareholders opting instead for a yearly vote on pay.

And last Friday Jacobs Engineering became the first company of this proxy season to have its compensation proposal voted down.

The template was produced by CFA Institute in partnership with a working group that included Jeff Morgan, president and chief executive of NIRI, and Anne Sheehan, director of corporate governance at CalSTRS.

The CD&A template is available to download here.

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