Measuring the efforts carried out by IR professionals has never been an easy task since data is rarely integrated. Measurement and evaluation is one way for IR teams to demonstrate that they are a positive contributor to the company’s performance and that they can be held accountable like other corporate departments.
An IR program based on comprehensive evaluation improves chances of IR success and makes it easier for companies to raise money, improve liquidity, and achieve a stock price that more accurately reflects their underlying value.
Investor relations contribute to the company; hence it is an investment, not an expense. IRO performance and efficiency should be determined objectively and monitored regularly.
While the share price is the most known metric, this may not be your best choice to measure, because by analyzing share prices alone, companies tend to ignore issues that go beyond the work carried out by the IR department, thus compromising the result of the assessment.
While there is no one-size-fits-all formula for measuring IR program success. We recommend that IROs should consider both quantitative and qualitative metrics when opting for evaluation.
Key Quantitative Metrics for IROs
Stock price. A company’s stock price is the most commonly known yet arguably the most controversial benchmark for evaluating IR success. Any percentage changes in a stock price will result in an equal percentage change in a company’s market cap. This is one of the main reasons why investors are so concerned with stock prices. But using a company’s stock price alone for benchmarking can be misleading and should definitely not be the only barometer for measuring the success of an IR program.
Shareholder retention. Assessing the ROI of an IR program should include measuring a company’s shareholder retention, which focuses on what investors were kept, won over, or lost. A company’s shareholder base can also be analyzed based on its diversity, i.e.
A focused approach aimed at measuring a company’s performance on the metrics that matter most and taking action based on that intelligence is key to retaining existing shareholders, adding new ones, and improving the ROI of the IR function.
Sell-side analysts’ coverage. As for the stock price/valuation, it is important to remember that ratings and coverage are also linked to the company’s fundamental performance so companies should not expect IROs to work miracles when the financials do not support the positive narrative. An increase in the number of covering analysts and the number of buy recommendations signals that the IR team’s goal of offering a steady stream of information to the sell-side community is helping analysts to arrive at high-quality earnings estimates and boosting the company’s visibility among investors.
IR website analytics. Investor relations professionals can use important analytics and insights obtained from their IR website to check whether they are effectively communicating important information to the investment community in real-time, and in a consistent manner. Specialists can do this by tracking bounce rates, numbers of visits, unique visitors, average visit duration, traffic rank, and user engagement levels on the IR website.
Qualitative Metrics to Evaluate IR Success
Investor perception studies. The perception audits should be perpetual and repeated several times in order for companies to compare themselves against their own historical audits and also against their peers. This allows IROs to measure their own progress, benchmark themselves against competitors, and identify areas that need improvement.
A perception audit is meant to gauge the capital markets’ impressions and opinions of a company through an independent investigation by a third party to offer an unbiased view of the company. This involves soliciting anonymous responses from the company’s existing or former investors and analysts regarding its products, goals, board leadership, senior management, financial performance, and investor communications efforts.
Awards and recognition. Receiving an honor, award, distinction, or recognition is a testimony to the best-in-class quality of an IRO’s communication and networking skills. These awards are typically given by the media and specialized firms in multiple categories including best financial (annual reports) and non-financial disclosures (ESG reports), outstanding IRO in a specific sector, best IR website, etc.
Final Thoughts
As IR has evolved into a strategic discipline stacked with MBAs and CFAs, IR performance metrics have also grown in sophistication. To provide value, IR professionals need to communicate to their company stakeholders with consistency, clarity, and candor. It’s vital for an IRO these days to have a financial orientation, as well as communications skills.
Measuring the IR performance can be categorized into two groups: output or outcome; quantitative or qualitative; internal or external; controllable or uncontrollable. The preferred categories should be well-designed and in correlation to the actual company’s IR strategy and its goals. Metrics vary depending on the size of the company and the budget allocated to investor relations departments. So, in order to make the performance measurement of the role effective, companies need to view the investor relations function as a profit center and not a cost center.
As there is no perfect way of measuring the investor relations performance, each IR department should determine their performance metrics according to their IR strategy and their goals. While some of these metrics are self-explanatory, others may need further brainstorming.