IR Magazine research into IR measurement looks at how many IROs have their bonus based on performance, putting a cash value on good IR
How do you know whether your IR program is a success? At a time when many IR departments are running on lean resources, it can help to know what you’re doing right when it comes to IR and where you might need to improve the program.
In order to do that, however, you first have to measure the effectiveness of your company’s investor relations strategy, and it can help to see what works – and what doesn’t – for other companies. For example, how do North American firms measure IR? What methods of investor feedback do small caps rely on most? How do IR assessment techniques differ across sectors? That’s what IR Magazine set out to discover this year.
What our initial research finds is that some of what we consider to be best practice when it comes to IR is little used as a measure of investor relations success. Responsiveness, for example, while clearly vital for a good relationship with investors, is rarely counted by companies when examining how well the IR program is performing. Globally, just 1 percent of firms say they use this metric when measuring IR. Other somewhat surprisingly low-ranking areas include management assessment, investor understanding of the company and even peer benchmarking.
Instead, it is investor feedback, shareholder composition, investor meetings, analyst coverage and – interestingly – share price that comprise the top five most-used metrics for IR measurement.
In practice, though, companies tend to take a mixed approach, with some forms of IR measurement falling in and out of favor and others being implemented in different situations. Taking a look at past investor perception studies published by IR Magazine across four continents proves this varied approach, with some firms taking an ad hoc approach or simply letting investors air their views as and when, and others taking a systematic approach (see A mixed bag, below).
Aside from helping IROs to see which parts of the IR program might need a little more attention, measuring the effectiveness of what the company is doing in terms of IR might also help you secure a better bonus. As part of the research, IR Magazine looked at the number of IROs receiving a performance-based bonus. For almost nine tenths of the 79 percent of IROs and 94 percent of IR heads taking home a bonus, this payment is based on company, team or individual performance.
While company performance is the most common measurement for performance- based bonuses, for almost half (46 percent) of IR professionals, personal performance also comes into play, dropping to 18 percent for team performance.
Rudy Sankovic, former head of IR at TD Bank, told IR Magazine in 2015 that the bank, a regular at the IR Magazine Awards – Canada, examines 10 different elements that make up ‘a balanced scorecard’ when measuring its IR program. The approach determines ‘scores’ for various aspects of investor relations: the extent of the activities undertaken by the team; the team’s efficiency, in value-for-money terms; the number of new shareholders buying 100,000 or more shares; internal business partners’ views of the IR effort, based on a survey; the CFO’s own ad hoc survey of investors; and so on.
The tally of these scores is used not only to assess the effectiveness of the Toronto- headquartered bank but also formed part of Sankovic’s own performance review.
A mixed bag |
This article is taken from Measuring & Demonstrating IR: Part I and appeared in the winter 2016 issue of IR Magazine