Heads Up: Does performance (TSR) measured on another day smell as sweet?

RiskMetrics uses the median 1- and 3-year Total Shareholder Returns (TSRs) for a company’s 4-digit GICS industry group in applying the first screen of its pay for performance test.  Only if a company’s own 1- and 3-year TSR are both below the company’s GICS industry group 1- and 3-year medians, will RiskMetrics continue on with its analysis under its pay for performance policy.

Hold onto your hats (or scarves or whatever other head wear you might have on, if any), you probably will need to re-check your company’s 1- and3-year TSRs against the GICS industry group medians.  Why? Glad you asked (and good, logical question to pose too). It seems that RiskMetrics calculated the median TSRs for the GICS industry groups using December 30, 2009 as the end date for the latest performance measurement — list of median TSRs for GICS groups.  Unfortunately, the policy is to use the last business day of the applicable quarter. In this case, that would mean December 31, 2009.

RiskMetrics has assured me that they will correct this error on their website (http://www.riskmetrics.com/policy/2010/PerformanceLists). As of 7:15 am Central on March 11, 2010, RiskMetrics had not yet corrected this.  Here is what the medians were as of December 30, 2009 (Click to open PDF FILE).

Of course, RiskMetrics will also have to update the median TSRs in its model too. The 12/30/2009 medians were input into the RiskMetrics ISSue Compass model and used for the burn rate analysis generated by the model for companies with fiscal years ending between November 15, 2009 and February 14, 2010. So, if your FYE falls within the specified range (e.g., you are a calendar year company), this will definitely impact you. You should update your pay for performance analysis as soon as the updated numbers are available to see how your company will fare.

Every company that is taking a plan to shareholders and has a FYE between November 15, 2009 and February 14, 2010, needs to compare their 1- and 3-year TSRs against the (to be) REVISED RiskMetrics’ Median TSRs for their GICS industry groups to see if the first screen of the pay for performance policy will pose any issues. From my review of a couple of individual company TSR calculations put out from the model, I think the model has calculated the individual company TSRs as of 12/31/2009. This means that this could simply be a simple exercise of comparing the amounts determined for a company’s 1- and3-year TSRs against the revised GICS industry group medians.

UPDATE – 3/11/2010, 4:45 pm Central– I’ve spoken with RiskMetrics and they indicate that the only issue was the date disclosed on their website. RiskMetrics indicates that the median TSRs disclosed yesterday and still the same today after the change of the date to December 31, 2009, were done using Standard & Poor’s database using month-end December (and not referencing a specific date).  So, it looks like this issue has been resolved.