February 24, 2015
n the fall of 2014, RR Donnelley, Equilar, and the Rock Center for Corporate Governance at Stanford University surveyed 64 asset managers and owners with a combined $17 trillion in assets to understand how institutional investors use the information in corporate proxies to make voting and investment decisions. This outreach effort resulted in Equilar’s 2015 Investor Survey, among other things. Some key findings are highlighted below.
1. Shareholders Are Dissatisfied with CEO Compensation and Disclosure
Only 38 percent of institutional investors believe that corporate disclosure about executive compensation in the proxy is clear and easy to understand. “Shareholders want to know that the size, structure, and performance targets used in executive compensation contracts are appropriate,” says Professor David F. Larcker of the Stanford Graduate School of Business. “Our research shows that, across the board, they are dissatisfied with the quality and clarity of the information they receive about compensation in the corporate proxy. Even the largest, most sophisticated investors are unhappy.”
2. Proxies Are Too Long, Difficult to Read
“With new pressure from activist investors and annual ‘Say on Pay’ (SOP) votes, it is more important than ever that companies explain to their shareholder base why the compensation packages they offer are appropriate in size and structure,” says Aaron Boyd, director of Governance Research at Equilar. “Investors are noticing the wide range in quality and clarity among various companies’ proxies. They want companies to communicate and explain, rather than simply disclose,” adds Ron Schneider, director of Corporate Governance Services at RR Donnelley Financial Services. “This represents a significant opportunity for many companies to improve the clarity of their proxies.”
For a more in-depth look into the issues raised by this year’s investor survey, visit Equilar’s publications page.