Companies in the US are increasingly using proxy statements to improve communications with their shareholders and potential investors, according to research by Equilar, an executive compensation and corporate governance data firm. US companies have to submit to the Securities and Exchange Commission (SEC) to provide information to shareholders ahead of annual meetings. Equilar's study, Innovations in Proxy Design, looked at proxies filed by S&P 100 companies and found that four out of five companies included proxy summaries in 2016, compared to two out of five in 2012.
The use of proxy summaries has therefore doubled in the past four years and much of the growth is due to requirements included in the Dodd-Frank Wall Street Reform and Consumer Protection Act, obliging companies to disclose information to shareholders on the corporate voting procedure and giving details about director salary, bonus, equity awards, benefits, expenses and any conflicts of interest.
The key findings of Equilar's study found that:
- the percentage of S&P 100 companies including proxy summaries increased from 39.4 per cent in 2012 to 79.0 per cent in 2016;
- the average S&P 100 CD&A grew in length by 5.0 per cent from about 8,900 words in 2012 to about 9,400 words in 2016, despite a slight decrease in 2013;
- the prevalence of compensation program checklists rose from 5.1 per cent in 2012 to 66.0 per cent in 2016;
- the number of companies disclosing modifications following shareholder engagement increased from 14.3 per cent in 2012 to 42.0 per cent in 2016.
Importantly, the proxy statement also provides information about the company's audit procedure and can be a useful communication tool for investors and potential investors. It can tell investors how compensation is allocated to senior executives (which is voted on by shareholders – known as 'say on pay') and can also show how the company responds to feedback from shareholders.
The study by Equilar shows that US corporates are becoming more transparent with regards to 'say on pay'. More companies are also disclosing modifications they make following shareholder engagement - see graph below. Equilar's Dan Marcec said: “Companies have an opportunity to use the proxy to reach out to stakeholders en masse each year. Even a simple acknowledgement that they were pleased with Say on Pay voting results as a reflection of their good will with shareholders may open the door for better investor relations on other topics.”
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