The Advisors' Blog

– Liz Dunshee

We received this note recently from an anonymous member:

I have learned that ISS is aware of the issues with the timing differences caused by proxy filing dates within a peer group – e.g. even if a company and ISS use identical peer groups, only outdated data is available to ISS for the later filers in the group – and that data has no relevance to the most recent performance year. This impacts all of the relative measures that ISS uses in its quantitative pay-for-performance evaluation: Multiple of the Median, Relative Degree of Alignment and Financial Performance Assessment. Because ISS understands that the most recent CEO compensation data isn’t available for all members of a peer group, ISS will rely on its judgment in making a say on pay vote recommendation – which is why only about half of the companies with “high concern” receive an against recommendation.

In any event, this illustrates the difficulty ISS faces in quickly analyzing and formulating say on pay voting recommendations for a company and highlights the degree to which ISS substitutes its judgment for that of a board of directors without a firm quantitative basis for doing so. I have seen passing references to this disclosure timing issue in some law firm memos and academic articles, but I don’t think most companies have a reason to focus on the issue as long as they receive a “For” SOP voting recommendation.

I actually have some sympathy for the difficulties ISS has in processing thousands of SOP management proposals each year with a very short turnaround period (cf., Lucy and Ethel working on the candy factory conveyor belt). That said, ISS may wish to consider clarifying the degree to which its SOP voting recommendation for a company relies on the relative quantitative measures as opposed to its own judgment.

You can find more insight into ISS’ methodology by perusing their FAQs and the other resources that we’ve posted in our “Proxy Advisors” Practice Area.