The Advisors' Blog

– Liz Dunshee

CalPERS voted “against” 52% of say-on-pay proposals this past proxy season – and nearly 3000 comp committee members at those companies also received “against” votes under the pension fund’s policy to vote against directors in the same year that it votes against say-on-pay or compensation plans. Now it’s updated its Executive Compensation Analysis Framework to add a “grant date target pay” methodology to the pay-for-performance assessment, which could make it even more difficult for some companies. Here’s an excerpt:

Grant date target pay analysis allows us to assess whether target pay is being set at a reasonable level relative to peers after taking into account a company’s historical performance relative to its peers. As an example, a company that sets target pay at the 50th percentile of peers while its historical performance is at the 25th percentile of the same peers would be considered to be setting target pay outside of what appears justified by its historical performance.

The updated framework also clarifies that CalPERS wants companies to prohibit hedging & pledging for execs.

CalPERS also issued these Executive Compensation FAQs which explain, among other things:

– CalPERS’ preference for 5-year performance periods

– What components of pay are included in “realizable pay”

– Peer group methodology and views on problematic benchmarking

– CalPERS’ preference for 5-year minimum vesting periods or 5-year minimum holding periods for equity awards vs. stock ownership guidelines

– Views on use of discretion by comp committees

The FAQs also emphasize that a high score on the quantitative P4P model doesn’t guarantee a vote “for” say-on-pay – qualitative factors are also important. We’ve posted the framework along with the FAQs in our “Investor Voting Policies” Practice Area.