February 29, 2012
How Proxy Disclosures Might Look in Wake of ISS’ P4P Evaluation Methodology
– Broc Romanek, CompensationStandards.com
In the “Q&A Forum” on TheCorporateCounsel.net, a member recently asked: “Are issuers revising or enhancing CD&A disclosure to address the new ISS P4P evaluation methodologies, and if so, how? I have seen one proxy statement that includes a table comparing CEO pay and average NEO pay to two company performance metrics (not those utilized by ISS) over a 5 year period.
Here are two responses:
1. Mark Borges notes: I expect that we will see some companies take on the ISS pay for performance methodology this year where they fail the analysis and believe that they have a compelling story to share with their investors as to why the ISS conclusion is inappropriate. In other words, I expect to see some feedback, similar to what we saw during the 2011 proxy season with the supplemental filings that were made/ To me, the key difference this year is that more companies are running simulations using the ISS methodology ahead of time (albeit with incomplete and imperfect information) to get a sense of where they may come out under the ISS test. Accordingly, I expect that more companies will address the likely outcome of the ISS analysis in their CD&A, rather than simply rely on supplemental materials.
The other thing that I expect we will see are companies running simulations using the ISS methodology but using “realized” or “realizable” compensation rather than “awarded” compensation as under the ISS test.
2. Broc Romanek notes: I see companies trying to anticipate the ISS peer group selection and if that group results in a potentially bad report, being proactive as to why they use a particular peer group and even going so far as to say why a GICs-based peer group is not appropriate for them. None of the ones I’m aware of have filed their definitive proxy yet.
Even last year, of course, companies were trying to address how their programs did have pay for performance even if it might not show up on the ISS methodology (for example, due to timing of decisions or other factors that make the SCT reporting not reflect an accurate picture).
By the way, here is a blog by Irv Becker and David Wise of Hay Group entitled “If All Comp Committees Followed ISS.”