General Electric’s 2013 proxy statement drew unanimous praise from the judges for its innovative design, use of plain language and brevity without sacrificing relevant disclosure. All of these features made it very easy to read – not something proxy statements are known for.
Working with an outside design firm, General Electric translated blocks of text into eye-catching colored graphics such as a chart in the performance and compensation section that highlights the company’s outperformance of the S&P 500 on earnings, share price and total shareholder return, breaking out noteworthy increases in segment profits, cash from operating activities and total shareholder return.
The company’s priority is to create a compelling, concise narrative in two pages, to which it allocates roughly 70 percent of its total proxy effort, says Christoph Pereira, GE’s chief corporate, securities and financial counsel. The remaining 30 percent of the company’s proxy work goes into presenting all the information required by the SEC that follows.
‘That is the level of attention that goes into those two or three pages,’ says Pereira, who suggests using information provided by the CEO, CFO and human resources to add value to the proxy statement. ‘It’s very tough to have that compelling narrative without senior management’s engagement.’
This year, GE expanded disclosure in the summary compensation table to explain that it grants long-term performance awards (LTPAs) to named executives every three or more years, unlike most companies that award them annually. To clarify this, the company added two columns on the far right of the table in a lighter color, in order not to confuse readers about SEC reporting requirements. The first new column addresses the way the company thinks about compensation.
‘We don’t think about year-over-year change in pension value, so we took that out of the first column,’ says Pereira. ‘Then we have a long-term performance award program that’s over three years, and the three-year payout creates some spikiness in our comp numbers.’
Now that ISS’ model examines compensation over a longer time horizon, there is some public relations risk associated with GE’s disclosure of LTPAs once every three years, Pereira says. The second additional column, which provides the SEC total with annualized LTPA payout for each of the last three years, was included to minimize that risk. ‘That’s an example of how we get in front of an issue and provide a solution to senior management that hopefully it will like,’ Pereira explains.
And because most institutional investors no longer peruse the printed document but instead look at the online version, companies must consider how their proxies look online, he adds.
For photos of the 2013 awards, click here.