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E-MailMatt Orsagh is a director at CFA Institute.
To help companies produce a more clear and concise executive compensation report that attends to the needs of both companies and investors, CFA Institute has released an updated Compensation Discussion & Analysis (CD&A) Template. It is an update of the 2011 template of the same name and aims to help companies draft CD&As that serve as better communications tools, not simply as compliance documents.
CFA Institute worked with issuers, investors, proxy advisers, compensation consultants, legal experts and other associations to update the manual so it would best serve the needs of investors and issuers. One of the main enhancements in the latest version of the template is a graphic executive summary that presents the main information investors are looking for in a concise format that takes up only one or two pages.
Executive summaries of key compensation practices have become a best practice in the years following the first edition of the CD&A template. Placing such information in an easily scannable format should aid investors in quickly finding the key information they are looking for such as: what has changed in the past year, say-on-pay vote, engagement activities, elements of compensation, CEO performance goals linked to compensation, the link between pay and strategy, pay governance practices, and CEO pay breakdown.
Following an executive summary is an overview of the company’s corporate performance for the previous year and an explanation of the link between that performance and executive pay. The remaining sections delve into detail about compensation elements and decisions, compensation-setting process and policies, and other areas of interest.
The CD&A template also highlights best practices in the creation and execution of the CD&A. It summarizes the best guidance of the CD&A working group of issuers, investors, and other practitioners in the compensation field.
A useful appendix in this updated CD&A template highlights the best CD&A disclosure practices of more than 30 companies. These issuers are both large and small from a host of industries, which should give smaller and mid-cap companies looking for ideas on how to produce a CD&A a good place to start.
Finally, with the aid of participants in our CD&A working group we have created a CD&A timeline to guide issuers in planning and producing the CD&A section of the proxy statement, keeping in mind the unique timeline under which a company’s compensation committee operates.
CFA Institute hopes that compensation committees see the CD&A template as a flexible tool, particularly because the CD&A should be a properly customized story and should not devolve into “boilerplate” language. By using this template and engaging with their investors to best understand any compensation related concerns, issuers can produce better communications documents that are more useful to investors.
