Guerdon Associates assessed the readability of the remuneration reports of the ASX 50 companies compared to 40 prominent US companies already identified by the SEC as having unreadable compensation disclosures. The results aren’t inspiring: on average, Australian companies’ remuneration reports are even harder to read than US compensation disclosures. 

In our May newsletter, we wrote of the SEC Chairman’s speech about plain English Reporting and the complexity of compensation disclosures of US companies (see HERE). We decided to see how Australian companies compare against their US counterparts.

We took sample pages from either the long term incentive (LTI) section or the “link-to-performance” section of Remuneration Reports and calculated well-accepted readability indices such as the Gunning-Fog Index, the Flesh Kincaid Grade Level, Flesche Reading Ease and SMOG.

The US companies identified by the SEC as having poor quality reports had an average score of 16.45 on the Gunning-Fog Index, which approximates the number of years of formal education an average person would need to understand the text. To give some perspective, university dissertations and PhD theses are normally rated higher than 17 on the Gunning-Fog index.

Australian companies have an average of 17.75, with 59% of the surveyed companies scoring above 17.  The following chart presents the distribution of scores for companies in the ASX 50.

 

On the other side of the scale, Westpac Banking Corporation scored the best result for ease of understanding at 13.30.  The Rinker Group and ASX Limited along with Westpac round out the three most easily understood remuneration reports.

Note that this index does not take into account the way the information is presented in tables and diagrams – only text.  Therefore, some companies that scored poorly in their text explanation may actually rate higher in their use of visual aids and vice versa.  Regardless of how they score, companies would do well to keep investors happy by writing reports that don’t require PhDs to be fully understood.

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