In 2007 Guerdon Associates applied a basic readability test on all ASX 50 annual reports (See HERE) .
The results were appalling.
Twelve years later we have re-assessed the readability of the ASX 50 remuneration reports. The comparison was made between the data from the previous article in 2007 and the latest remuneration reports of the 39 companies that remain listed.
The results are encouraging.
The new results show that, on average, someone does not need more than a basic university degree to understand the latest ASX 50 remuneration reports.
The readability tests were applied to the long-term incentive (LTI) section of the report. Otherwise, the “link-to-performance” section was used when a defined LTI section was not found. These were the same sections used as in 2007.
Calculations were made using the readability tests: Gunning Fog Index, Coleman Liau Index, Flesch Kincaid Grade Level, Automated Reading Index and Simple Measure of Gobbledygook (SMOG).
Readability as in the years of formal education required to understand a text.
The Gunning Fog Index measures the level of formal education needed for a person to understand the text on first reading. The other tests applied gauge the years of formal education needed to comprehend the text fully.
Using these tests, the average years required for each company was obtained. The results are summarised in the table below.
Table 1: Years of formal education needed to understand remuneration reports
Scores less than 15 indicate that the reader does not require a graduate degree to understand the text, while a score above 17 means someone requires a PhD to be able to understand the text upon first reading.
The average years of education to understand an annual remuneration report has fallen from 15.5 to 14.7 years. This shows that no more than a 3-year degree is required to understand the text.
We compared the Gunning Fog Index research results in 2007 to the latest results to see if there has been any improvement. The outcomes are illustrated in Figure 1 below.
Figure 1: Distribution of Annual Report Readability Scores based on the Gunning Fog Index
The proportion of companies that have a score above 17 has decreased, dropping from 54% to 46%. The number of reports that require less than 15 years of formal education has risen from 10% to 13%. These changes indicates that it is becoming relatively easier to understand the report at first reading.
Table 2: Readability Rank and Averages in 2007 and 2019
The biggest improvements of the sample come from Orica and Stockland Group, with their scores decreasing from 18.57 and 16.09 to 11.52 and 11.15. This also lifts Orica to being the 3rd best company in terms of the readability of its report now.
ANZ Banking Group, has now seen its score improve from 19.71 to 16.14. These improvements are encouraging since it indicates companies are making an effort to have the reports more readable.
It is worth noting that the software used only takes into account the language of the text used, not its presentation or other additional features such as tables or charts.
In case you were wondering, the readability of this article is 10.84 using the Gunning Fog Index . Try it, see if a 16 year old relative understands it (note it is does not mean that what they are reading will be considered interesting….).© Guerdon Associates 2021 Back to all articles