Can the Creativity of Financial Disclosures be Applied to Executive Compensation Disclosures?

by Malak Kazan, CECP, CCP, CBP, GRP 26. August 2011 10:53

 

As part of ERI’s on-going data collection efforts for executive compensation, we came across the annual report filed by a company in the United Kingdom, Land Securities. While reviewing the filing for compensation data, the data researchers felt as though they were reading someone’s personal copy of the annual report with “hand-written” comments. The summary pages of the annual reports are mocked up almost like a white board, helping the readers “connect the dots” easily through the presentation. The below table is an example of this:

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Is it possible to be more creative with how executive compensation is disclosed? An argument can be made that if CFOs can simplify the “line of sight” to the business results in their disclosures, the compensation committee should be able to do so as well. What if Land Securities' example was applied to executive compensation disclosures? Would it help the Board explain to shareholders the recommendations they put forward for their top executives? Below is an example of how this approach could potentially be applied to executive compensation disclosures.

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Proxy disclosures report the required tabular information, yet much of the critical information is footnoted to explain the data. More footnotes do not necessarily equal transparency. An obstacle may historically have been the complexity of the executive compensation programs; however, we are seeing fundamental changes in executive pay packages to improve line-of-sight by replacing discretionary plans with pay-for-performance plans. With the increased rules and regulations governing proxy disclosures, compensation committees and their resources (consultants and internal functional staff members) are rethinking how they convey their recommendations. 

For more information regarding Land Securities' annual report, click here. Visit www.erieri.com to learn more about our executive compensation analytics and tools.