Best proxy statement (large cap) Cognizant
An area of growing interest for many investors is the composition of companies’ boards in terms of racial and gender diversity and with respect to the mix of skills and experience among directors. Cognizant’s 2021 proxy statement is a vivid example of how the proxy statement can provide detailed yet clear insight into the makeup of the boardroom.
As a starting point, there is the board overview. Cognizant in 2019 was one of the first companies to use a two-page spread to showcase the board. For 2021 this spread was refined from previous versions and provides a comprehensive overview of the board. Next, the proxy statement looks at board composition and refreshment then, later, board engagement activities. These spreads showcase the range of board activities in the relevant area while connecting these activities to the overall board calendar.
Harry Demas, who at the relevant time in preparing the 2021 proxy statement was vice president, deputy general counsel for corporate, securities and M&A and assistant corporate secretary, explains that the level of detail the firm includes on board composition may not differ from other companies’ proxies. But he adds: ‘The big difference is the way we present it to make it easier for the reader to absorb.’
For example, director biographies traditionally comprise a paragraph of text then some notification of skills, or they may be presented as a list, Demas says. But Cognizant cleverly combines a timeline, details of a director’s professional history, information on key qualifications she/he has and a description of how her/his professional history supports the key qualifications.
Thankfully, it met with a positive reception. ‘It was very complex to get it all to work – but our directors loved it,’ says Demas, who is now of counsel with Latham & Watkins.
I think this is the most transparent presentation by any company I’ve seen
Compensation clarity Many companies have skills matrixes in their proxy statements, but Cognizant’s 2021 version uses a two-page spread connecting the key qualifications of directors to the firm's characteristics and strategic priorities. The key qualifications are then carried through other sections of the proxy statement.
The proxy statement also takes an in-depth and creative look at executive compensation matters. For example, its compensation-setting process – in a similar approach to the board composition and refreshment and board engagement activities sections – uses an innovative spread that gives a comprehensive picture of the company’s compensation activities while connecting these activities to the overall compensation process calendar.
It is very difficult to get all this information onto one page, Demas comments, and 2021 was the first time his efforts came to fruition.
Another feature is the ‘performance-based compensation – performance by metric’ section. According to Demas, Cognizant pioneered this innovative presentation and may be the only company that uses it. It evolves year by year, he adds: ‘I think this is the most transparent presentation by any company I’ve seen.’
The presentation enables the reader to see in a two-page spread the company’s performance for the last three years across each of the company performance metrics used for executive compensation, where the performance-based compensation targets were set for each such performance metric and the level of achievement of the company’s performance relative to the performance targets. This approach highlights the relationships between performance-based compensation targets and real company performance over a period of a year.
Among other things, the proxy statement includes a section on performance-based compensation by award, a new feature in 2021 that takes information previously found across several pages and consolidates it into a two-page spread.