Views on improving the integrity of global capital markets
31 January 2011

Thanks to CFA Institute “CD&A Template,” Compensation Discussion and Analysis No Longer a Sleep Aid

Having trouble sleeping? Here’s a surefire cure: Crack open your average compensation discussion and analysis (CD&A) section from any U.S. company’s 2010 proxy statement, and begin trudging through the obtuse legalese that describes how that company decided to pay its top executives. When reading some of these disclosures, we imagine somewhere a prize being given to an overworked lawyer for “outstanding achievement in long-winded, obfuscating compensation disclosure that leaves investors more confused about the link between pay and performance than they were before they began.”


With all the best intentions, the U.S. Securities and Exchange Commission (SEC) revamped CD&A disclosure requirements in 2006, aiming to clear up opaque disclosures and give investors a better idea of whether executives were incentivized in a way beneficial to shareowners. Seems like a noble goal right? Well it didn’t really work out that way. Just ask our members.


In a May 2009 CFA Institute member survey (PDF), 74 percent of respondents told us that they regularly use compensation practices and/or pay level information in the investment decision-making process. However, in a later survey(PDF) of more than 2,300 CFA Institute members, only 20 percent of respondents said that U.S. company CD&A disclosures are both transparent and understandable.


These results are especially disconcerting now that thousands of “say-on-pay” proxy votes will be cast at U.S. companies in 2011 and beyond — heightening the need for a CD&A that is more investor-friendly.


Never fear, dear reader: CFA Institute has assembled a group of issuers, investors, and like-minded experts who bravely put their differences aside to create a CD&A template(PDF) that gives issuers a blueprint for preparing a clear, concise CD&A. 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.


This is not a cookie-cutter, or one-size-fits all, exercise. All companies are different, and pay practices and policies will differ for legitimate reasons. The CD&A template simply gives issuers an outline of what investors want to see and how they want it presented. How that outline is filled in ultimately is up to each company. But the message from investors is clear: “Keep it simple.”


Our hope is that in future proxy seasons investors will have to look beyond the CD&A section of the corporate proxy for help falling asleep. May we suggest counting sheep?

About the Author(s)
Matt Orsagh, CFA, CIPM

Matt Orsagh, CFA, CIPM, is a senior director of capital markets policy at CFA Institute, where he focuses on corporate governance, ESG, and climate change analysis. He writes and speaks frequently on these topics on behalf of CFA Institute. His paper, Climate Change Analysis in the Investment Process was named “Best ESG Paper” by Savvy Investor in 2021.

2 thoughts on “Thanks to CFA Institute “CD&A Template,” Compensation Discussion and Analysis No Longer a Sleep Aid”

  1. LALEIGHQ says:

    Very informative, thanks

  2. Bob Dannhauser, CFA says:

    Thank you LALEIGHQ! The CD&A Template is getting a good reception – thanks to the good efforts of the Working Group of issuers and investors who produced it. Any other ideas on how Boards can communicate more effectively with investors?

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