Views on improving the integrity of global capital markets
21 December 2015

Executive Pay Disclosure in the CD&A Era: Six CorpGov Experts Offer Their Say

Investors are increasingly looking for and getting a succinct summary of “the what” and “the why” of decisions made by corporate compensation committees. That was one of the takeaways from an online forum CFA Institute hosted on Executive Pay Disclosure in the “Say-on-Pay” Era to discuss executive compensation and the Compensation Discussion and Analysis (CD&A) section of the corporate proxy.

We were lucky enough to have six experts in corporate governance and executive compensation join us for the forum, which took place on 7 December. I moderated the event and talked about our Compensation Discussion and Analysis Template, which aims to assist issuers craft a CD&A that serves both issuer and investor needs. I was joined during the day-long forum by these esteemed panelists:

  • Carol Bowie – executive director at Institutional Shareholder Services
  • Chip Lawrence – director at Apache Corporation
  • Keir Gumbs – partner in the corporate and securities practice at Covington & Burling LLP
  • James Kroll – director in the executive compensation practice at Towers Watson
  • Margaret M. Foran – chief governance officer, senior vice president, and corporate secretary at Prudential Financial, Inc.
  • Ted Allen – director of regulatory affairs and practice resources at the National Investor Relations Institute

The panelists discussed what investors are looking for in compensation disclosure, and the types of best practices that have evolved in recent years.

CD&A Process: What’s New and on the Horizon

Say-on-executive-pay votes in the United States have increased engagement between companies and investors on executive pay issues, leading to overall improvements in succinct and clear disclosures by large US corporate issuers, though there remains room for improvement from smaller and mid-cap companies that may be constrained in the resources they can devote to the CD&A process.

Engagement by board members with investors has increased with one panelist noting that in practice over 60% of directors communicate with institutional shareholders — a practice that was unheard of just a few short years ago. This increased communication has allowed issuers to get important feedback from investors and allowed many companies to iron out their differences with investors behind the scenes at the negotiating table and not in the media or in proxy battles.

The panelists encouraged companies to begin crafting their CD&As early (early in the fall for a April/May annual meeting) to get any needed input from investors and all necessary internal parties, primarily the compensation committee.

Some of the current and upcoming compensation issues panelists discussed were: CD&A best practices, the state of engagement, what investors to target for engagement, the realizable vs. realized pay debate, the Securities and Exchange Commission’s pay-ratio rule, pay-ratio frequency, the use of performance-conditioned equity incentives, the link between executive pay and strategy, and how the compensation committee needs to take ownership of the CD&A and its drafting process.

The forum generated an informative and detailed discussion of a very specific issue, and one increasingly pertinent in the investment decision-making process. We thank our panelists for their participation and invite interested members and investors to check out the CD&A forum.

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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.

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