I love proxy season! Writing a good Compensation Discussion & Analysis (CD&A) brings me excitement where it brings others absolute dread. I have been told many times that I’m strange for loving it – so let me share with you the appeal and value.
As a compensation professional, pouring through CD&A’s is like reading a great story. A story that evolves and grows in detail every year as the organization matures. You learn quite a bit about what a company values, what they hope to achieve, and all the little details that make up their pay strategy. It can be a wealth of valuable information if it’s well written and keeps your organization’s story at the heart.
A CD&A is a great opportunity to tell your story. Sure it’s the place to go for all the nitty-gritty pay details, but it can also be the place to go to learn about the organization’s strategic plans, drivers, and motivators and the rationale for why your company pays what it does.
In the era of say on pay votes, voting recommendations from Shareholder Advisory Services, and general increased scrutiny by Shareholders, the CD&A is the perfect platform to express the reasons you as a company do what you do. Having a clear, consistent, and concise narrative helps move the dial in terms of shareholder opinion on your proposed executive pay programs.
I have been personally involved in transforming shareholder opinions through CD&A and can share the effects it’s had on organizations. By taking a long, wordy CD&A and turning it into a clear, clean, and picture friendly statement that targeted the explicit messages the company wanted to convey, it became a key tool in changing shareholder opinion. When combined with Shareholder outreach, it completely turned around the overall opinion of executive pay programs.
If your CD&A is treated just like a box to check with each compensation program review, you’re missing an opportunity to send a clear message about the intent of the Company. Worst of all you may miss many important distinctions that can be lost in translation (or not included at all!) causing misunderstandings and lost shareholder buy in.
As you are writing the CD&A and detailing and explaining the chosen mechanisms for pay, it forces you to review your pay program. If you’re having a hard time clearly explaining the rationale behind each element it likely means that the structure might not be working for your company anymore. If your explanations are flowing with ease, it is a better indicator of a natural fit for your company.
Treat the writing of your CD&A as an opportunity to figure out what is working for your company and what might not be. While writing ask yourself: What kind of year did you have? Do the payouts reflect that? If not, why not? You’ll be surprised how easily or how difficult your explanations become.
Executive pay programs shouldn’t be a ‘set it and forget it’ system. As the overall structure, priorities, or strategies of your organization evolves then likely the pay plans should evolve with them. Your CD&A is a ready-made summary of all the company’s plans so why not use it to review them against their intent.
For those that dread proxy season, and all the requirements that go with it, just know there are people out there who love it and are here to help. You can reach this passionate CD&A enthusiast at Alison.Delorme@stratfordmanagers.com. I’m ready to help you write and share your company story via a CD&A anytime!