The Advisors' Blog

– Liz Dunshee

At the end of this month, previously-announced changes to the “Global Industry Classification Standard” (GICS) will shake up the codes for many tech, media, communications & e-commerce companies. This Compensia memo says it’s the biggest reclassification of companies in the history of the GICS – and explains the impact that it could have on compensation peer groups & ISS pay-for-performance assessments. Here’s an excerpt:

Although it is difficult to predict how the pending reclassifications will affect the analysis of a given company’s specific situation, we envision that changes could occur in these areas of ISS focus:

– Summary of a company’s total shareholder return performance (on a one-, three-, and five-year basis) relative to companies with similar GICS classifications;

– Construction of peer groups for purposes of pay benchmarking and relative “pay-for-performance” comparisons;

– Review of the relative alignment of the compensation of a company’s CEO as part of its quantitative screen for evaluating an executive compensation program in connection with formulating Say-on-Pay proposal voting recommendations;

– Review of the compensation arrangements for the non-employee members of a company’s Board of Directors relative to the competitive market for purposes of identifying “excessive compensation” practices;

– Review of new or amended employee stock plans to determine the shareholder value transfer and gross burn rate relative to companies with similar GICS classifications; and

– Calculation of a company’s “QualityScore,” which considers specific corporate governance and executive compensation-related policies and practices relative to GICS-based industry norms.