Disclosure plays an essential role in good corporate governance, the operation of the capital market, and the analysis of investment opportunities. It enables shareholders to keep better track of the management practices of companies in which they invest, and it aligns the interests of managers and shareholders so that companies become better able to extract value from lucrative, well-managed business activities.

Among the types of information assessed by stock market investors, director and officer compensation is gaining prominence in Brazil and worldwide due to its importance as a motivator behind companies' top decision-makers. The financial crisis of 2008 performed a crucial role by sounding the alarm and getting the world's leading market regulators to turn their attention to the issue.

In the U.S., the Securities and Exchange Commission (SEC) approved the practice of say-on-pay as part of the Dodd-Frank Act of 2010, recommending that D&O compensation be submitted to the shareholders at least once every three years, on an advisory and non-binding basis. In addition, companies are advised to disclose if and how the shareholders' opinion is being taken into account.

With the development of Brazil's capital market, the country's corporate governance practices are becoming more similar to those observed in the United States. As of January 2010 — when the Brazilian securities commission (the CVM) issued its Instruction 480 — public companies are compelled to disclose the salaries and benefits offered to directors and officers. Say-on-pay has increased in relevance after the Dodd-Frank Act was passed, and some Brazilian companies have even had compensation plans rejected by their shareholders.

The fundamental difference between Brazilian and American say-on-pay is that the latter does not entitle shareholders to a veto, whereas Brazilian investors receive that power in some cases. Reasons for rejection include lack of information about salaries and payment structures, as well as parameters for predicting variable compensation. Even today, many Brazilian companies fail to completely and clearly disclose their compensation plans to their shareholders, generating distrust and even driving down their own value.

Despite the importance of disclosure, many companies continue to question Instruction 480, claiming that revealing the salaries of their directors and officers could jeopardize their personal security. However, shareholders should not focus on the amounts per se when analyzing a compensation plan, but rather on the incentives that the company intends to offer. Well-designed plans seek to put the managers' interests in line with those of the shareholders, enhancing the creation of value.

Given the importance of a transparent, well formulated compensation plan, the CVM's new instruction is a fundamental step toward providing shareholders with access to their investee's plans and thus giving them a stronger voice at meetings. Based on this, they will be better able to analyze their investments and reward the companies that present not only the best prospects for generation of value, but also the best management-shareholder alignment.