Corporate Governance

Shearman & Sterling LLP Introduction | 3 and Analysis ("CD&A"). Often, 2014 disclosures were clarified, streamlined and condensed, and information was provided in easy-to-read charts, tables, pull-outs and other pictorials. In recent years, two sections have emerged as particularly useful to shareholders — proxy summaries and CD&A executive summaries. Proxy summaries provide an up-front highlight of the key points of the entire proxy statement, including executive compensation. Executive summaries highlight the key compensation policies and practices, and serve as a supporting statement for say-on-pay. Common components of an executive summary include: § A summary of the company's performance highlights and a pay-for-performance analysis. § A summary of the named executive officer ("NEO") pay elements, the reasons behind each element and the overall pay mix for each NEO. § A summary of the company's good governance practices. In 2014, this was often reflected in a table listing "what we do" and "what we do not do." § Details on significant recent changes to the company's compensation and governance practices. § The outcome of the prior year's say-on-pay results and shareholder engagement efforts. The proxy summary and the executive summary are often the only sections of a proxy statement that a shareholder will review, particularly institutional shareholders that review hundreds of proxies over a short time period. Thus, companies concentrate on making them readable and understandable. Eighty-eight of the Top 100 Companies included an executive summary in their CD&A, compared to 75 in 2013, and 59 companies provided a proxy summary in 2014, up from 51 in 2013. This is likely to increase further over time. Focus on Shareholder Engagement Since the implementation of say-on-pay, shareholder engagement has become increasingly important to the proxy process. In the early years, shareholder engagement was often a "defensive" mechanism implemented as a result of low say-on-pay voting results or negative recommendations from proxy advisors (often during the proxy period). Since 2012 and with increasing frequency in 2014, shareholder engagement has become "proactive" and a common component of good corporate governance practices throughout the year for all companies, including those with high say-on-pay approval rates. The number of Top 100 Companies disclosing their shareholder engagement efforts in 2014 increased significantly, with 62 companies providing disclosures, compared to 45 in 2013. The content varied, but often included the number of shareholders contacted and their aggregate stock ownership

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