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Disclosure Thoughts for 2012

Disclosure was a popular word throughout 2011. But don’t think 2012 will get any easier in terms of enhancing the disclosure of compensation and other information to the SEC and shareholders. A recently released article may just foreshadow the next proxy requirement, actual realized compensation. That’s right, Eaton Corporation took the disclosure of taxable income of its executives, disclosed in the summary compensation table, to the next level by calculating the actual realized income, inclusive of exercised options and payments received from vested retirement plans. At this point its anyone’s guess whether this will become a trend, but don’t be surprised if you see more companies proactively providing additional disclosures such as this in order to stay ahead of the curve.

 At NFPCC, we believe an “Executive Summary” in the CD&A that is direct and transparent will be useful. It should include a summary of the company’s financial results, key compensation decisions taken from 2011, key corporate governance practices of the company and pay-for-performance statements. We also believe the use of graphics will be key. Considerations may be:

  • A chart that sets forth the company’s key financial targets and the company’s actual performance (not giving away competitive info.)
  • A bar graph that compares the company’s TSR for the 1 and 3 year periods against its custom peer group.
  • A table describing the executive compensation program’s objectives and how each objective is achieved.
  • A bar graph that shows the allocation of each named executive officer’s total compensation.
  • A line graph that shows the relationship between the CEOs total direct compensation to the company’s performance as measured by the stock price for the past 5 years. And/or
  • A series of pie charts showing the relationship between the CEOs and other NEOs performance-based compensation as compared to the average of the company’s custom peer group.

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