The Advisors' Blog

Readers of this blog are well aware that the SEC is considering rule changes that would make ~80% of companies eligible for scaled disclosure (which is at the proposal stage) – and that could overhaul line-item executive compensation disclosure requirements across the board (proposal forthcoming). These changes may give companies more leeway to decide what to put in the proxy statement – balancing the heightened risks that may come with including voluntary disclosure in a proxy statement and 10-K. But for at least some companies, the proxy statement – and pay disclosures in particular – may continue to be a valuable communication tool that goes beyond the black & white requirements of the rules.

This Farient Advisors blog says that companies that treat the proxy as only a compliance document may risk eroding their credibility with shareholders over time – whereas those who clearly explain decision processes and pay outcomes can build the type of trust that becomes important if the company has an off year or needs to secure a key vote. The blog provides 5 tips for strengthening proxy disclosure – not by adding length and technical details, but by explaining decisions. Here’s an excerpt:

1. Frame Pay Outcomes as the Result of Active Decision‑Making

The most effective disclosures explicitly acknowledge the committee’s role as a decision‑maker, not just a program administrator. Strong proxies:

– Highlight the key questions the committee debated

– Explain how competing performance signals were balanced

– Describe how judgment was applied within the incentive framework

This reinforces that pay outcomes reflect governance oversight, not automatic formula execution.

2. Provide Context Around Goal‑Setting Rigor

Shareholders are increasingly focused on whether goals were demanding when established, not simply whether they were achieved. Boards can improve disclosure by:

– Describing goal difficulty in directional terms

– Explaining how targets reflected business conditions at the time they were set

– Clearly articulating the rationale for any adjustments

The objective is not to disclose proprietary targets but to give investors confidence that the goals were set with appropriate rigor.

3. Treat Discretion as a Governance Decision Worth Explaining

When boards exercise discretion, the proxy should reflect the seriousness of that decision. Effective disclosure:

– Explains why discretion was necessary

– Describes alternatives considered

– Clarifies how the decision supports long‑term value creation

– Addresses whether the action sets a precedent

The more unusual the decision, the more important it is to articulate the board’s reasoning.

This blog from Meredith is also a helpful resource if your company is considering changing proxy disclosures in response to SEC rulemaking.

– Liz Dunshee