Best Practices in 2022 Proxy Design

Proxy design firm Labrador recently published the tenth edition of its Proxy Trends and Analysis report, reviewing the 2022 proxy disclosures of S&P 250 companies to identify trends and best practices.

The organization evaluates proxies across a set of 140 unique factors and assesses the transparency of statements by looking at the simplicity of the language, the flow of information and use of informative graphics to engage the reader.

Overall, Labrador indicates that companies continue to leverage the proxy statement as a means to clearly share their compelling story, build trust with stakeholders and establish confidence with investors. Many organizations are pre-emptively disclosing information prior to the issuance of mandatory filings from regulatory agencies, contributing to the average length of proxies increasing yet again from 91 pages in 2021 to a whopping 96 pages in 2022.

Other key findings from the 2022 analysis include:

• Board Diversity. As a result of the Nasdaq board director diversity rule, 63% of companies now report a matrix for director ethnicity, race and other diversity factors. This has also given rise to individualized director skill matrices going from 45% in 2021 to 64% in 2022. Icons to symbolize a qualification/skill are also growing in prevalence.
  
  
• Compensation. Individual NEO snapshots are more common with one-third of companies now including a section for each named officer (up from 20% in 2021 and 15% in 2020). Labrador touts this practice as a way to show all pay decisions in one place, particularly if the officer has individual or subjective performance goals.
  
  
• ESG Oversight. 97% of proxies discuss how ESG issues are governed among management, committees, and the full board. This is an increase from 85% last year. Human capital management discussions have increased from 70% to 83% in the past year, ahead of the pending SEC disclosure rules.
  
  
• Graphics to Depict Performance. Ahead of the new, prescribed pay versus performance regulations that take effect for the upcoming proxy season, some organizations already show company performance in easy-to-read graphics. 58% use graphs to disclose TSR, 49% show revenue/ sales and 23% illustrate stock price vs an index or peer group price.
  
  
• Proxy Summary: Used by 77% of companies (up 2% from last year) with a trend around using this section to communicate the company’s strategy and create a big-picture overview.

The report includes some tips for employers as they draft their 2023 proxies, specifically related to the continued emphasis on ESG oversight. First, be prepared to expand the governance section to include an explanation of which ESG topics present material risks and the oversight structure and processes in place to monitor important topics. Next, the proxy should describe how the ESG program connects to the company’s business strategy and performance. Lastly, information in the proxy should be consistent and aligned with other company issued reports – like ESG, HCM and 10-K disclosures.