ISS Posts P4P Methodology Whitepaper

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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


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

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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:

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.

ISS Updates FAQs for 2013 Policy Updates

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On December 20, 2012, ISS posted its U.S. 2013 Compensation Policy Updates FAQs, available at: 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).

ISS Research Peer Group Data Entry Request Email

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Last week (on December 4, 2012), ISS Research sent out an email to all U.S. corporate issuers asking them to upload their peer group changes into their system by December 21, 2012.  I’ve received a few questions about the email (specifically the bolded and italicized language below) and have gone back and forth with ISS to clarify the email’s meaning.

As I suspected, ISS Research is looking for companies to upload details about the CEO pay benchmarking peer group that was used for 2012 and will be disclosed in a company’s 2013 proxy. If companies do not provide this information, ISS will default to using the 2011 benchmarking peer group that was disclosed as part of the company’s 2012 proxy.

So I’ve been encouraging clients to take the time to provide this updated information to ISS.  Doing so should help ensure that ISS will use the relevant peer group when it analyzes the company’s P4P alignment.  If you have any questions about this process, please let me know.

ISS U.S. Research Email

December 4, 2012

A Communication to U.S. Corporate Issuers

RE:  2013 Peer Groups

As outlined in our 2013 policy updates summary, ISS will be evolving its peer group construction methodology to incorporate companies’ self-selected peer information.

ISS’ current peer group methodology focuses on the subject company’s GICS industry classification, which may not reflect multiple business lines in which many companies operate.

To address this issue, the new 2013 methodology incorporates information from companies’ self-selected pay benchmarking peer groups in order to identify and prioritize GICS industry groups beyond the subject company’s own GICS classification.

The methodology then looks to an 8-digit GICS resolution to identify peers that are more closely related in terms of industry. Finally, when selecting peers, the methodology prioritizes peers that maintain the company near the median of the peer group, are in the subject company’s peer group, and that have chosen the subject company as a peer.  ISS’ peer group methodology maintains its focus on identifying companies that are reasonably similar to the subject company in terms of industry profile, size, and market capitalization. For more information on ISS’ new peer selection methodology, please visit ISS’ 2013 Peer Group Methodology FAQ.

We are aware, however, that some companies may have modified their peer groups since their most recent disclosure or may intend to do so as they prepare their 2013 proxy.

In an effort to ensure that the most accurate and up-to-date information is incorporated into our peer group selection process, ISS is offering companies an opportunity to proactively inform us of changes to company self-selected peers for 2013.  We believe that taking this extra step of collecting updated information will help produce a better outcome for investors and issuers alike.

If you have not made or do not intend to make changes to your previously disclosed peer group, or do not wish to provide this information in advance, no action is required.

To provide updated information on your benchmarking peers:

Please use the web form ISS has created to collect this information. The site is available at Further instructions are available there.

Please note the following:

  • The peer group provided should be the peer group used for benchmarking CEO pay.
  • While public disclosure of this information is not required, our expectation is that the same peers provided via this form will be disclosed in the upcoming proxy. The ISS research team will use this information only for the purpose of constructing peer groups.
  • Please avoid multiple submissions per company or provision of information other than relevant peers as described above.
  • Following submission of the form, you will receive further instructions via e-mail regarding confirmation of the submitted list. In particular, you will be asked to provide an electronic copy of the submitted list on your company’s letterhead.
  • Feedback should be submitted by December 21, 2012 in order to ensure its consideration in ISS’ peer group construction for 2013.
  • Note that, as in prior years, ISS peer groups are not finalized until our research is published.

If you have any questions, please refer to ISS’ 2013 Peer Group Methodology FAQ or feel free to contact our U.S. Research Helpdesk at


ISS U.S. Research

[emphasis added]