Category Pay for Performance

ISS Issues 2014-2015 Policy Survey Results

On September 29, 2014, ISS released the results of its 2014-2015 Policy Survey. ISS highlighted several survey results related to compensation matters, including:

  • Responses regarding pay for performance; and
  • Equity plans.

Pay for Performance (P4P)

ISS highlighted the responses to several survey questions that dealt with P4P. ISS indicates that investors liked the idea of having CEO pay limits relative to company performance (27% of investors supported, while only  12% of issuers agreed). The magnitude of CEO pay was considered when evaluating pay practices by 24% of investors and 50% of issuers. Based on these responses, and the additional follow-up questions, ISS may propose a refinement to its P4P policy that does more to evaluate the CEO pay versus both absolute and relative measures.  Currently, the ISS P4P policy compares a CEO’s pay to that of the median CEO pay of the ISS peer group for the company.  So, we’ll have to see if this means ISS will add two components to the CEO pay evaluation–both a relative and absolute analysis–and how these will factor into the overall quantitative concern level.

Equity Plans

ISS indicates in the survey results that it will be revising its equity plan policy for the 2015 proxy season (i.e., for shareholder meeting held on or after February 1, 2015). According to the narrative, ISS will implement a “balanced scorecard” approach for evaluating equity compensation plans that will evaluate the proposal under three categories:

  • Cost;
  • Plan Features; and
  • Company Grant Practices.

ISS indicates that issuers supported a weighting of these categories as follows:

  • 70% of investors supported weighting of 30% to 50% for Cost, with 40% being cited most often;
  • 62% of investors supported weighting of 25% to 35% for Plan Features; and
  • 64% of investors supported weighting of 20% to 35% for Grant Practices.

ISS has given no indication of what the final weighting will be, but they could be 40/30/30.  Additionally, ISS did not necessarily explain what was included in each fo these broad categories.  While I assume “Cost” refers to the ISS Cost calculated for an equity plan proposal using ISS’s ISSue Compass model, it is not absolutely certain that ISS won’t introduce some additional factors into the Cost category. The same holds true for the other categories, Plan Features and Grant Practices, which, conceivably, ISS already addresses in its proxy reports on equity plan proposals.  However, there is no indication if there will be additional features (such as liberal share counting) that might cause a proposal to lose all the points under the Plan Features category. Likewise, while Grant Practices probably includes the ISS Burn Rate evaluation, it is by no means absolutely certain that is all it will include.  It also isn’t clear to me what will happen if a company exceeds the ISS Burn Rate Cap but makes a public commitment, will that still be viewed as an override and cause a company to not lose points under the Grant Practices category?

The possibilities are numerous and, unfortunately, not touched upon in these survey results.  However, they do indicate a significant reorganization to the ISS equity plan proposal policy and all companies should keep an eye out to see what the actual draft policy looks like and try to understand what differences exist from the current policy and how that might impact share requests.

 

A copy of the ISS Press Release announcing the survey results can be found here:

http://www.issgovernance.com/iss-releases-results-annual-global-voting-policy-survey/

 

The actual 2014-2015 Policy Survey results can be found here:

http://www.issgovernance.com/file/publications/ISS2014-2015PolicySurveyResultsReport.pdf

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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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