March 24, 2017

in Executive Compensation

Executive Compensation and Proxy Circular Disclosure

What to say and how to say it

The proxy circular offers publicly traded companies a meaningful opportunity to communicate with shareholders — but also brings with it complex decisions. When putting together the entire circular, and in particular the Compensation Discussion and Analysis (CD&A), companies often have questions regarding how much to disclose, and how to make that disclosure effective.

Some organizations may opt to follow best-in-class examples from award-winning circulars. Such documents include charts, graphs and sidebars that offer deep-dive information on the companies’ numbers, activities, plans and packages. These proxies contain attractive visuals and strong but simple writing that often tell a story as well as offer detailed explanations.

Meanwhile, some find it a better fit to follow Canadian Securities Administrators (CSA) regulatory requirements closely and offer shareholders information that is compliant, but goes no further.

Companies that most successfully navigate proxy season do so after clearly defining where on this continuum they want to fall. This choice helps guide communications through proxy season, and all year round as well.


Compensation disclosure positioning


Determining your approach

As an organization begins preparing its proxy materials, it should assess what approach best fits its unique situation. One way to do this is to start from an aspirational standpoint that tries to produce potentially award-winning materials, and pull back from there to find the most apt fit.

Having the resources available, such as time and staff, to invest in the proxy can be a factor. As can an organization’s comfort with disclosing granular material about various aspects of how the company is run, its successes and struggles and the nuances of executive compensation, such as stock options and bonuses. Finally, the information needs of shareholders can help determine the contents of a proxy. For instance, whether the majority of stockholders are retail or institutional, and their past interest regarding information on specific items, should be taken into account.


Pros and cons of aspirational disclosure


Know the climate

Another key factor in determining the nature of a proxy is the business climate and the company’s risk for an activist takeover, the voting out of key directors or a failed say-on-pay vote.

Keeping on top of the annual meeting climate in the appropriate sector ensures a company is prepared and can fend off a problem by better communicating with shareholders.

What factors put a company at risk for a negative outcome at the annual meeting?

  • Poor financials
  • Complex, difficult-to-explain company performance problems
  • Stagnant Board that lacks diversity
  • Board members with unpopular ideas or image
  • Generous executive compensation despite poor company performance
  • Complex or unusual executive compensation packages
  • Previous poor support for say-on-pay


Say-on-pay in 2016

2 – Number of Canadian companies with failed votes

11 – Number of companies with less than 75% support

92% – Average support level for say-on-pay votes over the last 3 years


The Canadian Coalition for Good Governance recommends that all publicly traded Canadian companies conduct an annual say-on-pay vote at their annual meetings.

From Kingsdale’s 2016 Proxy Season Review



proxy-contests-in-canada From Kingsdale’s 2016 Proxy Season Review




Effective proxy circulars

No matter what level of disclosure it contains, a proxy circular should be easy-to-read, attractive and offer information that shareholders can use to make choices at the annual meeting.

According to the CCGG’s “2016 Best Practices for Proxy Circular Disclosure,” strong proxy circulars should contain:

  • A structure that allows readers to easily follow along.
  • Descriptive headings to ensure readers can locate information.
  • The highlighting of key ideas and information.
  • High-level information, in plain language, to precede any detailed analysis.
  • Visual aids such as charts, graphs and images.
  • Plain language that avoids industry jargon.


Plain language

Internally, companies may rely on lingo to conduct business on a day-to-day basis. But in a proxy circular, the language has to be pared down so all investors can understand an organization’s story. Even institutional investors will appreciate simple, clear language, particularly if they work largely in a different sector.

The U.S. Securities and Exchange Commission’s “A Plain Language Handbook” offers helpful guidance on how to craft investor-facing content so it’s readable for all.

A proxy circular should be written with:

  • Short sentences. In a long sentence, readers can lose the meaning.
  • Active voice. Think “Dog bites man,” not “Man was bitten by dog,” which uses passive voice. Active sentences are shorter and it’s much clearer who is doing the action.
  • Few defined terms. While a proxy must define some terms, it’s better to avoid lingo and communicate using everyday language.
  • Few added details and words. Trim sentences down to the basic, important facts.
  • Concrete terms and descriptions and few abstract ideas.

A clear-eye assessment of a company’s needs, and those of its investors, can lead to the development of proxy materials that achieves the goal of communicating clearly with investors so they’ll cast well-informed votes come the annual meeting.


Accompass can assist companies in their proxy disclosure efforts, including advice on the level of disclosure, style of materials and in-depth reviews of compliance with applicable regulations and calculations.