What are the best practices for disclosing executive compensation?

1 Legal and ethical obligations

The first step in disclosing executive compensation is to understand and comply with the legal and ethical obligations that apply to your organization. Depending on the size, type, and location of your organization, you may be subject to different laws, regulations, standards, and codes that govern how much and what information you must disclose about executive compensation. For example, public companies in the US must file proxy statements with the Securities and Exchange Commission (SEC) that include detailed information about the compensation of their chief executive officer (CEO), chief financial officer (CFO), and three other highest-paid executives. Private companies, nonprofits, and government entities may have different or less stringent disclosure requirements, but they still have ethical obligations to be transparent and accountable to their stakeholders. Therefore, it is important to consult with legal and compliance experts to ensure that you meet the minimum disclosure requirements and follow the best ethical practices.

3 Formats and channels

The third step in disclosing executive compensation is to choose the appropriate formats and channels to deliver the information. The formats and channels may vary depending on the audience, purpose, and frequency of the disclosure. For example, proxy statements are the primary format and channel for disclosing executive compensation to shareholders and regulators in public companies. However, proxy statements may not be sufficient or suitable for other audiences, such as employees, customers, media, or the general public. Therefore, you may need to consider other formats and channels, such as annual reports, websites, social media, press releases, or webinars, to communicate executive compensation to different stakeholders. The choice of format and channel may depend on the relevance, timeliness, accuracy, and credibility of the information. For example, websites may provide more up-to-date and interactive information than annual reports, while press releases may generate more attention and visibility than webinars.

4 Stakeholders and communication strategies

The fourth step in disclosing executive compensation is to identify and engage with the relevant stakeholders and develop effective communication strategies. Stakeholders are the individuals or groups that have an interest or influence on your organization and its executive compensation practices. They may include shareholders, board members, executives, employees, customers, suppliers, regulators, media, analysts, activists, or the general public. Each stakeholder may have different expectations, preferences, and concerns about executive compensation disclosure. Therefore, it is important to understand and address their needs and interests, and to establish trust and dialogue with them. Communication strategies are the plans and actions that you take to communicate executive compensation disclosure to your stakeholders. They may include setting goals, defining messages, choosing channels, allocating resources, measuring outcomes, and soliciting feedback. Communication strategies should be aligned with your organization's mission, vision, values, and culture, and should reflect your commitment to transparency and accountability.

5 Trends and challenges

The fifth step in disclosing executive compensation is to monitor and respond to the ever-changing trends and challenges. Executive compensation disclosure is a dynamic, ongoing process that must be adapted to the evolving environment and expectations of your organization and its stakeholders. These trends and challenges include increased scrutiny and regulation by shareholders, regulators, media, and the public; a growing demand for more detailed, comprehensive, comparable, and accessible information; rising complexity and diversity of executive compensation elements; shifting focus from financial to non-financial performance measures; and balancing the need for transparency with the need for confidentiality. To address these trends, you may need to update and adapt your executive compensation disclosure practices and policies regularly, while also seeking feedback from stakeholders and experts.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?