The Advisors' Blog

– Broc Romanek, CompensationStandards.com

I have fond memories of attending a ISS conference about seven years ago, with Disney’s brand new CEO Bob Iger delivering a memorable address on governance (Iger succeeded Michael Eisner not long after the Delaware Supreme Court’s famous executive pay decision). Now, as detailed in this WSJ article by Joann Lublin, Disney is fighting ISS hard over a negative say-on-pay recommendation having filed two separate pieces of supplemental proxy materials on March 1st. As noted in this Davis Polk blog, Disney’s SOP passed yesterday with 56.6% support.

Here are some thoughts from a member about this battle:

Disney is in a “no win” situation with ISS, as they are being compared to Winn Dixie, Best Buy and other consumer goods companies due to the lack of sufficient media companies. I think Disney’s approach of going direct to shareholders with their compensation rationale makes the most sense.

I also believe that companies have to do a much better job defining what pay for performance is, and not allow shareholders to fill the pay for performance void with ISS’ methodology, as it is fundamentally flawed. The ISS pay-for-performance model compares 1 and 3 year historic TSR to potential future compensation values ( i.e., grant date values of long-term incentives) that will be earned on future performance results.

ISS’ methodology is a bit like keeping score at today’s basketball game using the players average points the last three years. You do not win or lose today’s game based on how you scored in the past. If that was the case, why play the game at all? Same for compensation. If future performance did not matter, then why not just write the exec a check for the grant value and call it a day?

In the WSJ article, Joann Lublin tries to make the company’s desire to focus on realizable pay sound like some nefarious way to fool shareholders. But, if CalPERS gets it, then there is a good chance all shareholders will come around and consider realizable pay and performance is far better than using grant date values.