The NASPP Blog

Every year, ISS conducts a survey in advance of updating its corporate governance policy. The survey is open not only to ISS clients and institutional investors but also to entities that are often the subject of ISS recommendations, including both companies and corporate directors, as well as other market participants, such as those that advise companies. There are a couple of questions in this year’s survey that caught my eye.

Frequency of Say-on-Pay Votes

Although most companies currently hold Say-on-Pay votes every year, the SEC’s final regulations allow these votes to be held every one, two, or three years, at the election of shareholders. The “Say-on-Pay frequency vote” must be held at least once every six years.  In 2017, for the first time since Say-on-Pay went into effect, most companies will once again give shareholders an opportunity to vote on how often their Say-on-Pay vote should be held.

In anticipation of this, ISS has included a couple of questions on the frequency of Say-on-Pay votes in this year’s survey. Currently, ISS’s policy recommends an annual Say-on-Pay vote. The survey contemplates a different recommendation, possibly one that is dependent on company circumstances, such as company size, performance, problematic pay practices, and/or past Say-on-Pay vote results.

P4P Analysis

As part of its evaluation of CEO pay, ISS performs a “Pay-for-Performance Evaluation.” This consists of a quantitative analysis in which the company’s TSR performance is compared to the CEO’s pay and both metrics are ranked against the company’s peers.  If the company performs poorly in the quantitative analysis, the next step is a qualitative analysis, in which ISS looks at the company’s specific pay practices.

The survey focuses on the quantitative analysis, asking if this analysis should be based on other metrics, in addition to TSR, and, if yes, what other metrics should be included.

In the past decade, we’ve seen a significant increase in the use of TSR targets in performance awards.  In the NASPP/Deloitte Consulting 2013 Domestic Stock Plan Design Survey, use of TSR had increased to 43% of respondents, up 48% from the 2010 survey. I expect usage will be even higher in this year’s survey—possibly nearing or exceeding 50% of respondents. No other metric comes close, in terms of prevalence.

But, TSR is not without its critics. For example, see the article we just posted by Brett Herand of Pearl Meyer, “Re-Evaluating Total Shareholder Return as an Incentive.” It is interesting to see that the TSR backlash has reached enough of crescendo that ISS is considering changing its policy.

Survey Closes August 30

If you want to participate in ISS’s survey, you don’t have much time.  The survey closes on August 30.

– Barbara