Category Corporate Governance

ISS to Introduce QuickScore 3.0

ISS recently announced that it will be revising its corporate governance scoring system again this year.  The new system will be referred to as QuickScore 3.0 (when will ISS come up with some snappier titles for its sequels?). There will be a data verification period for companies from 9 am Eastern on November 3rd through 8 pm Eastern November 14th. QuickScore 3.o will then be released (into the wild?) at 9 am Eastern on November 24th.

ISS indicates that the changes embodied in QuickScore 3.0 include:

  • Enhanced methodology  which for US companies will include the disclosure of annual performance evaluations for the board, the presence of a controlling shareholder, a material degradation to the rights of shareholders, the existence of a sunset provision for companies with unequal voting rights, and the weighting of board gender diversity.
  • Closer examination of investigations to include review of the type of regulatory investigation and the materiality of penalties.
  • Enhancements to the company report to include historical scores, a log of data changes and trending analysis.
  • Exapaned coverage of 4,500 companies in 30 markets with deeper coverage of Europeans companies in the STOXX 600 and emerging market coverage for Brazil, Russia, South Africa, and the introduction of India, China, and South Korea in Q1 2015.

ISS has released a technical document for QuickScore 3.0 that lists the factors considered by QuickScore 3.0 for each region.  The document can be found at: http://www.issgovernance.com/file/products/qs3-appendix-final.pdf

The factors that will be considered under the Compensation subscore of QuickScore 3.0 for US companies include:

  • What is the degree of alignment between the company’s cumulative 3-year pay percentile rank, relative to peers, and its 3-year cumulative TSR rank, relative to peers?
  • What is the degree of alignment between the company’s 1-year pay percentile rank, relative to peers, and its 1-year TSR rank, relative to peers?
  • What is the size of the CEO’s 1-year pay pay, as a multiple of median pay for company peers?
  • What is the degree of alignment between the company’s TSR and change in CEO pay over the past five years?
  • What is the ratio of the CEO’s total compensation to the next highest paid executive?
  • What is the degree of alignment between the company’s annualized 3-year pay percentile rank, relative to peers, and its 3-year annualized TSR rank, relative to peers?
  • Are any NEOs eligible for multi-year guaranteed bonuses?
  • What is the ratio of the CEO’s non-performance-based compensation (All Other Compensation) to Base Salary?
  • Do the company’s active equity plans prohibit share recycling for options/SARS?
  • Do the company’s active equity plans prohibit option/SAR repricing?
  • Does [sic.] the company’s active equity plans prohibit option/SAR cash buyouts?
  • Do the company’s active equity plans have an evergreen provision?
  • Do the company’s active equity plans have a liberal CIC definition?
  • Has the company repriced options or exchanged them for shares, options or cash without shareholder approval in the last three years?
  • Does the company’s average 3-year equity grant rate exceed the greater of 2 percent and the average of its industry/index peers?
  • Did the company disclose a claw back or malus provision?
  • What are the vesting periods mandated in te plan documents for executives’ stock options or SARS in the equity plans adopted/amended in the last 3 years?
  • What are the vesting periods mandated in the plan documents, adopted/amended in the last three [sic.] years, for executives’ restricted stock/stock awards?
  • What is the holding/retention period for stock options (for executives)?
  • What is the holding/retention period for restricted shares/stock awards (for executives)?
  • What proportion of the salary is subject to stock ownership requirements/guidelines for the CEO?
  • Does the company disclose a performance measure for the short term incentive plan (for executives)?
  • What is the level of disclosure on performance measures fr the latest active or proposed long term incentive plan?
  • Did the most recent Say on Pay proposal receive shareholders’ support below 70%?
  • What’s the trigger under the change-in-control agreements?
  • Do equity based plans or other long term awards vest completely upon a change in control?
  • What is the multiple of pay in the severance agreements for the CEO (upon a change-in-control)?
  • What is the basis for the change-in-control or severance payment for the CEO?
  • Does the company provide excise tax gross-ups for change-in-control payments?
  • What is the length of employment agreement with the CEO?
  • Has ISS’ qualitative review identified a pay-for-performance misalignment?
  • Has ISS identified a problematic pay practice or policy that raise concerns?

We’ll have to see what impact this has on the QuickScores for US companies. However, base dont eh above, I do not think the changes will be too significant in the vast majority of cases.

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SEC Finishes Investigation of Big Lots’ Executives’ Trading

On May 21, 2013, Big Lots released this Form 8-K indicating that the SEC had concluded its investigation into executive trading and determined that no further action will be taken. Where’s the front page story in the Wall Street Journal announcing that? Where’s the infographic showing that the SEC decided not to take any further action?

Here’s the link to Big Lots’ Form 8-K announcing that the investigation was completed and no further action would be taken by the SEC:

http://www.sec.gov/Archives/edgar/data/768835/000076883513000040/big-8xkxotherevents.htm?goback=.gmp_2311483.gde_2311483_member_243466994

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Institutional Investors Focus on Rule 10b5-1 Plans

The media has been focusing on insider trading plans, i.e., so-called Rule 10b5-1 plans, in a number of recent articles. This has apparently grabbed the attention of institutional investors and lead the Council of Institutional Investors (CII) to submit a rule-making request to the SEC on December 28, 2012 regarding the use of such plans (available at: http://www.sec.gov/rules/petitions/2013/petn4-658.pdf).

Specifically, CII requests that:

  • Rule 10b5-1 plans only be permitted to be adopted during company-adopted trading windows;
  • The adoption of multiple, overlapping Rule 10b5-1 plans by companies and insiders be prohibited;
  • A mandatory delay of three or more months apply to the start of trading in a Rule 10b5-1 plan after its adoption; and,
  • Frequent modifications or cancellations of Rule 10b5-1 plans by companies and insiders not be allowed.
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New Article: Failed Say-on-Pay Votes: A Road Map to Recovery

On October 9, 2012, Bloomberg BNA’s Pension & Benefits Daily published this article by Exequity’s Ed Hauder. The article looks at companies whose say-on-pay (SOP) votes failed in 2011 and have reported their SOP votes for 2012, some of the actions these and other companies with failed SOP votes can take to turn things around, as well as the success this group of companies had with their 2012 SOP votes, and includes charts looking at 2011 and 2012 SOP votes, change in CEO total compensation, and TSR and percentile rank against companies’ GICS groups.

http://www.exqty.com/Media/Publications/Exequity%20Hauder%20Article%20PBD%20Oct.%209%202012.pdf

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