The NASPP Blog

Today’s CompensationStandards.com blog points readers to a handy chart of “Problematic Pay Practices – as Identified by ISS” published by ExecutiveLoyalty.org.  Since there are several that stem from equity compensation practices, I’ll recap some of them.

Avoid These Practices or Risk a Negative ISS Vote

While there were several compensation practices identified, only some of them apply to equity compensation. They include:

• Repricing or replacing of underwater stock options/stock appreciation rights without prior shareholder approval (including cash buyouts, option exchanges, and certain voluntary surrender of underwater options where shares surrendered may subsequently be re-granted).
• Stock plans with a liberal CIC definition (e.g. low % or occurrence before CIC closing) coupled with single trigger vesting upon the CIC “are likely to receive a negative recommendation” (FAQ #63).
• Equity plans or arrangements that include a liberal CIC definition (such as a very low buyout threshold or a CIC occurring upon shareholder approval of a transaction, rather than its consummation), coupled with a provision for automatic full vesting upon a CIC, are likely to receive a negative recommendation. [FAQ 59]
• Excessive reimbursement of income taxes on executive perquisites or other payments (e.g., related to personal use of corporate aircraft, executive life insurance, bonus, restricted stock vesting, secular trusts, etc; see also excise tax gross-ups above.

I don’t think any of these come as a particularly big surprise – but it’s helpful to see the most likely hot button practices wrapped up into a handy chart for reference. As ExecutiveLoyalty.org points out, “on at least an annual basis, those who make executive compensation decisions for public companies should “score” their practices against ISS and other policy guidelines.”

-Jenn