Using Proxy Disclosure to Increase Boardroom Transparency

In brief: Proxy disclosure has moved from bare-bones to comprehensive disclosure, and it is now seen as an effective tool to communicate with a large swath of investors. The Compensation Discussion & Analysis has increased transparency into executive-pay programs, and now companies are starting to provide a similar window into the boardroom. When preparing their next proxy, directors can use the examples in this tool to help expand their board’s communication with investors and potentially disclose additional insight into board dynamics and operations as a scalable way to communicate with their company’s investor base.

Most relevant audiences: lead directors, board chairs, full board, corporate secretaries

The focus on the board’s compensation committee has never been sharper. The components of compensation plans and the link between compensation and company performance are under intense scrutiny from shareholders, employees, policymakers, the media, and other stakeholders. The Report of the NACD Blue Ribbon Commission on the Compensation Committee revisits NACD’s 2003 Report of the NACD Blue Ribbon Commission on Executive Compensation to highlight the new environment in which compensation committees—and, more broadly, boards—are now operating. It recommends that the compensation committee and board work together to establish an executive compensation philosophy that supports the company in creating long-term, sustainable value.

The report includes ten specific recommendations for compensation committees to consider when evaluating their compensation philosophies. It also provides practical tools, such as sample compensation committee charters, a compensation committee assessment, and guidance on executive employment contracts.