How can retail investors make informed decisions about remuneration if they cannot understand remuneration reports?
Last year we commented on the average length of a remuneration report for a top 20 company – almost 14,000 words.
We compared this to famous documents and revealed that some remuneration reports were longer than the Commonwealth of Australia Constitution Act. The word counts have remained relatively constant for 2013 reports.
A long document doesn’t necessarily mean a bad one. As disclosure requirements have increased, organisations have tried to simplify the presentation of their reports, adding graphs and tables to simplify information transfer.
So how readable are they?
We used two simple tools to assess the readability of remuneration reports for top companies, the Flesch Reading Ease test and the Flesch-Kincaid Grade Level.
These tools are blunt. They are based on sentence length and the number of syllables in words. Yet they do provide an indication of the difficulty of absorbing remuneration information. For Flesch Reading Ease, none of the companies achieved the over 40/100 score suggested for business writing. (The companies achieved scores in the high 20s to early 30s.)
A good score is 60 out of 100.
The Flesch-Kincaid Grade Level (which states the level of schooling an individual needs to read the document) was better. Tenth graders could read some of the remuneration reports, although others were only accessible to students who had two to three years of university under their belt.
Eleventh to twelfth grade is deemed acceptable for technical subjects.
If shareholders are to understand required disclosures, organisations must continue to put effort into word choice, graphs and tables for easy comprehension.
(To give you an indication, the scores for this article are 40.0 and 11.4. Prior articles we have published scored significantly worse – we promise to try and simplify our own text.)