The Advisors' Blog

– Liz Dunshee

Last week, Glass Lewis announced the publication of its 2021 Voting Guidelines. As always, the first few pages of the Guidelines summarize the policy changes. Here are the compensation-related highlights:

– Short-Term Incentives: We have codified additional factors Glass Lewis will consider in assessing a company’s short-term incentive plan. Specifically, we expect clearly disclosed justifications to accompany any significant changes to a company’s short-term incentive plan structure, as well as any instances in which performance goals have been lowered from the previous year. Additionally, we have expanded our description of the application of upward discretion to include instances of retroactively prorated performance periods.

– Long-Term Incentives: We have codified additional factors we will consider in assessing long-term incentive plan structure. Specifically, we have defined inappropriate performance-based award allocation as a criterion which may, in the presence of other major concerns, contribute to a negative recommendation. Additionally, any decision to significantly roll back performance-based award allocation will be reviewed as a regression of best practices, that outside of exceptional circumstances, may lead to a negative recommendation. Additionally, we have defined that clearly disclosed explanations are expected to accompany long-term incentive equity granting practices, as well as any significant structural program changes or any use of upward discretion.

Glass Lewis also clarified its existing policies on several topics, including:

– Excise Tax Gross-Ups & Golden Parachute Votes: We have added language codifying how we evaluate the addition of new excise tax gross-ups to specific change-in-control transactions. In such scenarios, Glass Lewis may consider expanding a negative recommendation beyond the golden parachute proposal in which the gross-up entitlements first appear to also include a subsequent recommendation against the compensation committee members and the say-on-pay proposals of any involved corporate parties.

– Option Exchanges & Repricing: We have added language clarifying our approach in evaluating option exchanges and repricing proposals, which emphasizes the importance of the exclusion of officers and board members from the program, as well as that the program be value-neutral or value-creative, in driving any exceptions to Glass Lewis’ general op-position to such proposals.

– Peer Group Methodology: In the section titled Pay for Performance, we have clarified that, in determining the peer groups used in our A-F pay-for-performance letter grades, Glass Lewis utilizes a proprietary methodology, as previously announced in 2019. In forming this proprietary peer group, Glass Lewis considers both country-based and sector-based peers, along with each company’s network of self-disclosed peers. Each component is considered on a weighted basis and is subject to size-based ranking and screening. The peer groups used are provided to Glass Lewis by CGLytics based on Glass Lewis’ methodology and using CGLytics’ data.

We’re posting memos in our “Proxy Advisors” Practice Area. To hear how to handle decisions that may impact short- and long-term incentives, tune in to our December 15th webcast, “Covid-19 Pay Adjustments: Engagement, Decision-Making & Documentation.”

Also, on TheCorporateCounsel.net, we’re hosting a January 14th webcast that will be a dialogue with Courteney Keatinge, Senior Director of ESG Research at Glass Lewis. Members of TheCorporateCounsel.net can access that webcast for free – if you’re not a member, you can try a no-risk trial.