GK CloudHost - шаблон joomla Окна

 Call 1 (877) 441-6090 | Login

ISS and Glass Lewis 2013 Policy Update Comparison

Institutional Shareholder Services and Glass Lewis have each updated their proxy voting guidelines in advance of the 2013 proxy season.  Individually, these updates may seem like minor changes, however, when looked at in the context of overall pay-for-performance analyses of these proxy advisors, the implications these changes will have for companies in the coming year become much more apparent.  Below is a summary of the key changes made by each advisory firm regarding peer groups and realizable pay, as well as an analysis of pay-for -performance quantitative and qualitative assessments.

Peer Groups

Institutional Shareholder Services (ISS)Glass Lewis

Key Changes:

  • Incorporates information from company’s self-selected peers.
  • Selection process starts with 8-digit GICS codes used to identify peers within same sub-industries.
  • Peer groups no longer contain members based on the 2-digit GICS level.
  • Prioritizes peers that keep subject company near the peer group median, are included in the subject company’s peer group, and that have chosen the subject company as a peer.
  • Eases size requirements for peer selection in cases of very small and very large companies.
  • Revenue, not assets, will be sued for peer selection at certain financial firms.

Key Changes:

  • Uses Equilar Market Peers as part of its pay-for-performance analysis.
  • Equilar Market Peers assembles publicly disclosed peer group data for thousands of companies to construct a peer network that uses algorithms to evaluate the strength of relationships.
  • Equilar Market Peers then selects the top 15 strongest connections in order to best model market choices.

What Does This Mean?

What Does This Mean?

In addition to selecting companies in your own GICS group, ISS might be selecting companies from your self-identified peer’s GICS group.

Glass Lewis changed its peer methodology to utilize Equilar market Peers, increasing the emphasis on company disclosed peers.

Pay-for-Performance Quantitative Assessment

Institutional Shareholder Services (ISS)Glass Lewis
  • Takes quantitative view of company’s overall compensation package in examining pay-for-performance.
  • Pay-for-performance peer group analysis considers company’s TSR and total CEO pay ranks within a constructed peer group of 14-24 companies over one and three-year periods.
  • Pay-for-performance absolute analysis considers annual changes in company’s CEO pay and company TSR over the prior five fiscal years.
  • Levels of concern are graded as high, medium, and low.
  • Quantitative pay-for performance analysis examines the relationship between relative compensation and relative performance.
  • Relative compensation evaluated using three-year weighted average of the total compensation of the company’s top five executives, including the CEO. The most recent compensation and compensation of the CEO are weighted heavier in this analysis.
  • Relative Performance evaluated on five indicators of shareholder wealth and business performance: change in operating cash flow, EPS growth, TSR, ROE, and ROA.
  • Weighted-average executive compensation percentiles and weighted-average performance percentiles compared to determine how closely compensation tracks relative performance, with each company then assigned a school-letter grade: “A”, “B”, “F”, etc.

What Does This Mean?

What Does This Mean?

If quantitative assessment determines a pay-for-performance misalignment, company moves on to qualitative review. No major changes except for peer group selection.

Even though the number of performance metrics considered in the analysis has been reduced, unlike ISS, Glass Lewis does not rely exclusively on stock price changes as an indicator of performance. Also, unlike ISS, Glass Lewis considers compensation levels of all NEO’s not just that of the CEO.

Pay-for-Performance Qualitative Assessment

Institutional Shareholder Services (ISS)Glass Lewis
The following is a list of qualitative factors that ISS may examine as part of its Say-on-Pay analysis.
  • The ratio of performance- to time-based equity awards
  • The overall ratio of performance-based compensation
  • The completeness of disclosure and rigor of performance goals
  • The company's peer group benchmarking practices
  • Actual results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and relative to peers
  • Special circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g., bi-annual awards)
  • Realizable pay compared to grant pay
  • Any other factors deemed relevant
The following is a list of qualitative factors that, when weighted together, may trigger an "against" Say-on-Pay vote from Glass Lewis.
  • Inappropriate peer group and/or benchmarking issues
  • Inadequate or no rationale for changes to peer groups
  • Egregious or excessive bonuses, equity awards or severance payments, including golden handshakes and golden parachutes
  • Guaranteed bonuses
  • Targeting overall levels of compensation at higher than median without adequate justification
  • Bonus or long-term plan targets set at less than mean or negative performance levels
  • Performance targets not sufficiently challenging, and/or provide for high potential payouts
  • Performance targets lowered without justification
  • Discretionary bonuses paid when short- or long-term incentive plan targets were not met
  • Executive pay high relative to peers, but not justified by outstanding company performance
  • Terms of the long-term incentive plans are inappropriate

What Does This Mean?

What Does This Mean?

Companies with high concern levels in the initial quantitative pay-for-performance analysis should become familiar with factors ISS will look at in its qualitative analysis.

A Grade of 'D' or 'F' in the quantitative analysis will not necessarily translate to an "against" recommendation on Say on Pay as qualitative factors such as overall compensation structure, disclosure of compensation policies and procedures are considered in the overall analysis.

(ISS U.S. Corporate Governance Policy Updates)

Use of Realizable Pay

Institutional Shareholder Services (ISS)Glass Lewis
  • Realizable pay will be calculated using the sum of relevant cash together with equity-based grants and awards made during the performance period being measured.
  • Equity awards will include the value of awards earned and target awards, which will be calculated using target values based on stock price at the end of the performance measurement period.
  • Stock options or stock appreciation rights (SARs) will be revalued using the remaining term and updated assumptions as of the performance period, using the Black-Scholes option pricing model.
  • Realizable pay consideration has the ability to increase or decrease a CEO’s pay-for-performance concerns.
  • Realizable pay will be considered in the overall qualitative assessment, and will focus on earned and potential realized pay, rather than pay opportunities disclosed in the summary compensation table.
  • Equity awards will include those paid out during a three-year performance period, including awards that may have been granted prior to the evaluation period.
  • Stock options will use intrinsic value at the end of evaluation period and stock awards will be valued using stock price at the end of the evolution period.

What Does This Mean?

What Does This Mean?

ISS will potentially use realizable pay in its qualitative analysis. The realizable pay calculation provides a figure based on the future value of equity awards considered within the performance period.

Glass Lewis will consider realizable pay in its qualitative analysis. However, just as with ISS, it is unclear exactly how the evaluation will be performed. The realizable pay figure provides the current value of awards at the fiscal year end.

To learn about how Equilar can help with these issues, please click here.
To learn more about ISS’s changes, please click here.
To learn more about Glass Lewis’s changes, please click here.