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By Mary Hughes
Dec. 4 — Compensation and governance issues in the coming year are expected to center around executive pay, director qualifications, shareholder activism and company outreach, according to a recently released report.
Equilar Inc., the Redwood City, Calif.-based executive compensation data firm, released Dec. 3 the “2015 Compensation & Governance Outlook Report.” The report, Equilar said, “highlights critical topics that will affect those dealing with compensation and governance issues in the upcoming year.”
It addresses disclosure trends in executive pay and corporate governance in light of companies' efforts to engage with shareholders and to present their programs favorably and effectively. Key findings are illustrated with disclosure examples taken from recent Securities and Exchange Commission filings.
Report findings include:
• Peer group disclosure. Some companies are including in their proxy disclosure additional information through charts and tables to provide context to peer group listings. Equilar's examples include a comprehensive table featured in Johnson & Johnson's proxy statement that listed peer group companies' business characteristics and Johnson & Johnson's rankings among the companies. Another approach was taken by American Express Co., which used a pie chart to group peers according to business categories.
• Pay-for-performance alignment. Graphics and charts are increasingly appearing in proxy statements' compensation discussion and analysis to demonstrate pay-for-performance alignment. In the report's Executive Pay section, Equilar provides examples that show chief executive officer compensation in relation to the company's revenue and net income, and CEO compensation by performance-based component.
• Director skills. A few companies are including “director skills matrices” that show the skills needed by the company and the skills possessed by each board nominee. The report includes an example from the Coca-Cola Co. that uses a bar chart to summarize each director nominee's qualities in relation to the company's goals.
• Pay ratio disclosure. “A handful of companies” are beginning to include ratios in their proxy statements before they are required to by yet-to-be-finalized SEC rules, the report said. In addition to Noble Energy Inc., two companies disclosed pay ratios in their 2014 proxies: one following the requirements of the proposed pay ratio disclosure rule and the other disclosing internal pay equity, comparing just executive officers' pay.
• Shareholder engagement. More companies in the Standard & Poor's 100 index are disclosing their shareholder engagement efforts. Equilar reports that 65 companies did so in 2014, up from seven in 2008. Companies failing say-on-pay or showing poor performance will often disclose shareholder engagement, the report found.
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