Proxies long and mind-numbing
So much for the SEC’s new rules requiring companies to write more clearly about executive compensation.
This year’s compensation discussion and analysis (CD&A) sections — the first crop created under the new SEC mandate — are almost impossible to read.
“Many shareholders say the new proxies require more work, not less, to decipher,” writes Eric Dash, an economics reporter for The New York Times.
“Pay consultants say some of the new data is so dizzying that they are not sure how to sift through it; some charts even require another set of charts to interpret them. And a new section in proxies, meant to explain clearly how executives are compensated, is overrun with mind-numbing corporate-speak and legalese.”
Lynn E. Turner, a former S.E.C. chief accountant, agrees.
“‘It’s like reading through Tolstoy’s War and Peace,'” the managing director of research at Glass, Lewis & Company, a proxy research firm in San Francisco, told The New York Times.
‘What is missing is a clear, succinct story about how the compensation committee came to the amount they were going to pay.'”
Like reading Harvard Law Journal
In fact, the reports are as dense as academic papers, according to Clarity! Communications’ analysis of 40 companies’ CD&As. Using three common readability metrics, the tests showed that:
- The median length was 5,472 words. The shortest was 1,500 words; the longest, more than 13,500 words. A 13,500-word piece would take the average American more than an hour to read (though it might take longer to understand).
- The average CD&A used complex words — words of three syllables or more — nearly one-third of the time.
- The average Gunning-Fox index score came in at 16.45, about the same as an academic paper.
- The average Flesch Reading Ease score was 34.86 — about the same as the Harvard Law Journal. Only about one-third of American adults can read at this level, according to The Accessibility Institute at the University of Texas at Austin.
- The average Flesch-Kincaid Grade Level was 11.41, or “fairly difficult.” However, the test Clarity! used only goes up to grade 12. So the real average is likely higher: 13 CD&As reached the highest grade level possible on the test.
What happened to transparency?
“It’s somehow fitting that officials use a big, foggy word like ‘transparency’ when what they really mean is ‘not lying’ and ‘not hiding what we’re really doing.’ But that doesn’t sound as nice or vague, does it?” writes John Schwartz in The New York Times.
“But now that the disclosure forms are rolling in, experts say that if anything, the S.E.C. has achieved opacity. There is so much information that you can’t see the forest for the non-tax-qualified deferred compensation. The disclosure forms run dozens of pages, with so much swirling data and paper that they form a cloud, like the foil chaff that fighter jets drop to confound radar.”
Schwartz describes the disclosure forms as running “dozens of pages, with tables, footnotes and the kind of language that makes your hair hurt.”
Does your copy make your readers’ hair hurt? Find out by using three readability tests.
SEC calls for clearer writing
Proxy statements have become so complex that investors need “a Sherpa guide and a magnifying glass” to figure out what companies spend on executive compensation, according to investor groups.
Now the SEC is mandating that companies write more clearly about executive compensation. That’s information that has too often been hidden in the fine print or obscured by vague language in the past, critics say.
Want to make sure readers can find your point without a Sherpa and magnifying glass? Download the SEC’s fine, free guide to clear writing, “A Plain English Handbook.”
Sources: Eric Dash, “Executive Pay: A Special Report; More Pieces. Still a Puzzle,” The New York Times, April 8, 2007
“Readability of Executive Compensation Disclosures,” Clarity! Communications, March 1, 2007
John Schwartz, “Executive Pay: Essay; Transparency, Lost in the Fog,” The New York Times, April 8, 2007
Jonathan Peterson and Kathy M. Kristof, “More Data on Pay at the Top Is Mandated The SEC votes to require more-detailed, ‘plain English’ disclosure of executive compensation,” Los Angeles Times, July 27, 2006