October 3, 2018
GICS Code Shuffle: Don’t Panic Yet
– Liz Dunshee
Last month, I blogged about recent changes to GICS classifications that might affect the ISS peer group & pay-for-performance analysis. And although ISS has now issued FAQs on the changes, there’s still some anxiety about how it’ll play out.
In this blog, Pearl Meyer’s Jim Heim says that since proxy advisor assessments don’t drive company performance, they shouldn’t drive pay arrangements – and we should take a deep breath before worrying about those types of external factors. Here’s an excerpt:
To be clear, nothing that is under the control of either management or boards has changed here. And it is extremely difficult at this early stage to predict how an individual company’s scoring will be impacted, because:
– Most ISS assessments are multi-factor
– Many of these assessments are subject to additional changes in methodology as ISS course-corrects to better reflect input from its customers
– Both financial and pay data (for the company being assessed as well as the companies it is benchmarked against) will be refreshed by the time the actual ISS assessment takes place
Jim recommends that advisors guide clients by monitoring ISS FAQs – which have already clarified the impact of this change for some companies – as well as policy changes. In addition, a key “value-add” is to understand what levers are available to the company if the GICS shuffle actually increases the risk of an “against” recommendation from ISS on pay-related items.