Pay for Performance

ISS Accepting Peer Group Updates Starting November 20, 2013

ISS Corporate Services sent out an email on November 18, 2013 that indicated that ISS will be accepting updates to Russell 3000 companies’ self-selected peer groups from November 20, 2013 at 9 am Eastern through 5 pm Eastern on December 9th. (Copy of email text appears below)

If your company revised its peer group since last year’s proxy and used this revised peer group for compensation decisions that were made for the year that will be required to be disclosed in your next proxy (2014 proxy covering 2013 for calendar year companies) for shareholder meetings between February 1, 2014 and September 15, 2014, you should consider participating so that ISS has your correct self-selected peer group when it develops its own peer groups for assessing your company (ISS peer group is used for its pay for performance analysis done as part of its say on pay vote recommendation).

Link to submit changes: http://www.issgovernance.com/PeerFeedbackUS
(Active during the dates and times detailed above)

ISS Corporate Service November 18, 2013 email

We wanted to make you aware that ISS will be accepting updates to companies’ self-selected compensation benchmarking peers starting this Wednesday, November 20, at 9:00 AM EST.

The peer submission window will remain open until 5:00 PM EST on December 9.  All companies in the Russell 3000 index with annual meetings set to occur between February 1, 2014, and September 15, 2014, are invited to participate.

ISS uses a company’s self-selected executive compensation benchmarking peers as a key input into the ISS peer group selection process.  To maximize the potential overlap between a company’s proxy-defined peers and the ISS-selected peers, your clients should use this process to ensure that ISS has an up-to-date list of what their proxy-defined peer companies will be.  For more details about the ISS peer group selection process, please refer to ISS’ U.S. 2013 Peer Group Methodology Frequently Asked Questions.

ISS requires the issuer itself to submit the peer group updates; outside advisors may not submit on a client’s behalf. [Companies] should consider submitting any peer group changes by visiting http://www.issgovernance.com/PeerFeedbackUS no later than December 9.  These peer group submissions should be for the most recent fiscal year ended prior to the 2014 annual meeting.  If an issuer did not make any changes to its compensation benchmarking peer set, or disclosed the relevant peers in a previous proxy statement, that peer set will automatically be factored into the ISS peer selection process; no further action is needed.

If [companies] do submit an updated peer list, it must be accompanied by letter submission on the company’s letterhead, in a PDF version, containing the full list of peers that were submitted online.  The issuers will receive specific instructions on how to complete this email verification at the end of their web-based peer submission.  Without this verification, the updated peer list will not be incorporated into the ISS peer selection process. 

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ISS Posts P4P Methodology Whitepaper

ISS recently posted its whitepaper detailing its pay for performance (P4P) methodology:

The Evaluating Pay for Performance white paper provides an overview of ISS’ approach in evaluating Pay for Performance alignment. Originally published prior to the 2012 proxy season [Note: a revised version of the whitepaper was published in February 2012], the document incorporates further updates for 2013 that describe ISS’ new peer selection methodology and approach to measuring realizable pay.

Evaluating Pay for Performance: ISS’ Quantitative and Qualitative Approach

 

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Call for Glass Lewis/Equilar Peer Group Updates – Due 1/18/2013

As you are likely aware, Glass Lewis has adopted Equilar’s “Market Peers” for use in its Say on Pay quantitative analyses and are also used in Equilar’s Pay for Performance tool that can simulate the Glass Lewis quantitative tests. More information on Equilar’s Market Peers can be found at: http://www.equilar.com/peer-research/pdf/EquilarInsight-Market-Peers.pdf

US companies in the Russell 3000 index that plan on filing updated peer groups in their 2013 proxies can submit new peer groups here. Equilar asks that the updates be submitted by corporate issuers only. Companies will have until January 18, 2013 to update their peer groups.

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ISS Updates FAQs for 2013 Policy Updates

On December 20, 2012, ISS posted its U.S. 2013 Compensation Policy Updates FAQs, available at: http://www.issgovernance.com/policy/2013/USCompensationFAQ. In these FAQs, ISS gives some additional color around its 2013 policies, including some insights into Realizable Pay.

According to the FAQs, the “large cap companies” that ISS will analyze CEO realizable pay for are S&P 500 companies. ISS also indicates that realizable pay will be measured over a three (3) year period and compared with granted pay (generally pay as disclosed in the Summary Compensation Table, but ISS will continue to value stock options using its own methodology).

“The total realizable value for these grants and payments will thus be the sum of the following:

  • Base Salary reported for all years in the measurement period;
  • Bonus reported for all years;
  • Short-term (typically annual) awards reported as Non-equity Incentive Plan Compensation for all years;
  • For all prospective long-term cash awards made during the measurement period, the earned value of the award (if earned during the same measurement period) or its target value in the case of on-going award cycles;
  • For all share-based awards made during the measurement period, the value (based on stock price as of the end of the measurement period) of awards made during the period (less any shares/units forfeited due to failure to meet performance criteria); or, if awards remain on-going, the target level of such awards;
  • For stock options granted during the measurement period, the net value realized with respect to such granted options which were also exercised during the period; for options granted but not exercised during the measurement period, ISS will re-calculate the option value, using the Black-Scholes option pricing model, as of the end of the measurement period;
  • Change in Pension Value and Nonqualified Deferred Compensation Earnings reported for all years; and
  • All Other Compensation reported for all years.

*Generally three fiscal years, based on the company’s fiscal year. For realizable pay calculated as part of ISS’ 2013 analyses, this will generally consist of fiscal years 2010 through 2012.”

The FAQs also address the revised ISS peer group methodology, Pay for Performance eveluations, and advisory votes on golden parachutes (say on golden parachutes).

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