Updated CD&A Template Aims to Improve Communication

Matt Orsagh is a director at CFA Institute.

In 2011, CFA Institute released the Compensation Discussion and Analysis (CD&A) Template as a tool to help companies produce a more succinct and informative CD&A that served the needs of both companies and investors. At the time there were complaints from both issuers and investors that the typical CD&A was seen by too many issuers as a compliance document that was too lengthy and too opaque to serve as the communication tool investors desired.

In the intervening years disclosures in the CD&A have improved a great deal, due in part to increased engagement between issuers and investors, a better understanding of disclosure best practices by issuers, and more willingness by some issuers to experiment with more creative ways of telling their stories.

There is still room for improvement, and the CD&A process can still be daunting, especially for small and mid-cap companies with limited personnel and resources to devote to the CD&A process. CFA Institute therefore thought it important to work again with issuers, investors, compensation consultants, and other interested parties to update the CD&A Template—highlighting best practices that have developed over the past three years, while continuing to provide a simple framework for companies to produce a clear and concise CD&A. The 2nd edition of the CD&A template is now in the early stages of development, with a final paper expect in the spring of 2015.

Some important themes have emerged already.


One of the biggest changes we have seen in the past three years is the increase in engagement between issuers and investors around executive compensation. Mandatory say on pay votes have driven an increase in engagement that has had beneficial effects for both parties. More investors feel they are being heard and more issuers have been able to communicate their messages more effectively. Engagement has led to more disagreeable compensation practices fading away, and more investors pulling shareholder resolutions around pay when they reach a compromise with a company. Therefore, the discussion of engagement will play a more prominent role in the 2nd edition of the CD&A Template.

Executive Summaries

More companies have opted to produce executive summaries at the beginning of the CD&A to quickly summarize key information most important to investors. More detail on an item touched on in the executive summary can then be expanded upon in the CD&A itself. After our recent meetings with issuers and investors, CFA Institute will propose a more graphics based executive summary that is user friendly to investors, and provides key information most important to investors such as: developments in the past year, say on pay results and engagement activities, performance metrics used to set pay, the link between pay and strategy, and pay governance practices.

Core Disclosures

The body of CD&A Template fleshes out the executive summary, and other than the inclusion of discussions concerning engagement activities will remain similar to the previous iteration of the template:

  • What has changed in the past year
  • Elements of Compensation
  • Performance Targets for past year/performance period
  • Compensation decisions made in past year
  • Compensation framework: Policies, process, risk
  • Results of engagement
  • Employment and termination agreements

CD&A Production Timeline

We plan to provide companies with a rough CD&A production timeline, highlighting how companies with best in class CD&A disclosures plan for and execute the creation of the CD&A. We believe this will prove highly valuable to small and mid-sized companies with limited resources.

List of Best/Worst Practices

A recent innovation in the CD&A is a list of best and worst pay governance practices, often accompanied by a discussion of why a company does or does not engage in such practices.

Examples of Best Practices

There is no perfect CD&A, but we have found examples of companies whose disclosures in certain areas that stand out as best in class. In addition to listing some best and worst practices, we plan to highlight and reprint some best in class disclosures as examples of innovative ways companies can better communicate with investors.

Required SEC Disclosures

Companies want to make sure the disclosures they make are compliant with SEC protocol. We therefore will include (as we did in the first iteration of the CD&A Template) a list of disclosures required in the CD&A, and where they are discussed in the CD&A Template.

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