ISS has announced that for companies with annual meetings between January 15th and September 30th of next year, its peer group review & submission window will open Monday, November 20th – and will close at 8pm ET on Tuesday, December 5th. ISS opens this window twice per year for companies to provide input (but note that the company-submitted peers are just one factor in the ISS determination process).
Submissions should reflect peer companies used (or to be used) by the submitting company for pay-setting for the fiscal year ending prior to the company’s next upcoming annual meeting (for your 2024 annual meeting, this would mean peers used for the 2023 fiscal year). Here’s more detail:
Companies that have made no changes to their previous proxy-disclosed executive compensation benchmarking peers, or companies that do not wish to provide this information in advance, are under no obligation to participate. For companies that do not submit any information, the proxy-disclosed peers from the company’s last proxy filing will automatically be factored into ISS’ peer group construction process.
Additional information on the ISS peer submission process, including links to ISS’ current recent peer selection methodology for the U.S., Canada, and Europe, is available on the ISS website here.
We recently fielded a member inquiry on our “Q&A Forum” (#1475) about changing compensation consultants during the last few months of the fiscal year. John gave these thoughts on whether a company should request that its outgoing consultant provide an assessment of compensation programs:
There’s no requirement that a board or comp committee retain a compensation consultant or, if they do, any rule that would require that consultant to provide such an assessment.
Assuming the Comp Committee has retained another consultant, they could certainly ask that consultant to provide the assessment. If not, and assuming your board doesn’t have a policy requiring such an assessment, I think the biggest issue is likely going to be how you address the absence of a third party assessment in your CD&A disclosure, particularly if you’ve previously disclosed that your comp consultant provided this assessment in prior years.
When it comes to the implications for the Item 407 assessment of independence for the advisor that served for more than half the year, he followed up:
I think obtaining the memo from the former consultant would be prudent. The disclosure requirements of Item 407(e)(3)(iii) and Item 407(e)(3)(iv) require the company to provide the required disclosures, including conflict of interest disclosure, with respect to any compensation consultant who played a role in determining or recommending any form of executive or director comp during the most recent fiscal year. The information in that memo will be important in assessing whether there are any disclosable conflicts of interest.
Meredith also chimed in on whether investors or proxy advisors have any preference for “rotation” of compensation consultants:
I’m not aware of any ISS/GL preference on this. The Center On Executive Compensation recently released a guide on best practices. I discussed this guide in more detail – including policies, the rotation concept, assessments and RFPs – with Ani Huang, CEO of the Center On Executive Compensation, in this 14-minute podcast.
Speaking of podcasts, I’m excited to share that Meredith has more episodes of “The Pay & Proxy Podcast” in the hopper! Reach out to either of us if you have a topic that’s good for a practical “quick take” – it’s a fun & easy experience, and you get to meet Meredith! She’s at mervine@ccrcorp.com and I’m at liz@thecorporatecounsel.net. Remember that our contact info is at the bottom of every blog email if you ever want to drop us a line! We love hearing from members.
Clearbridge Compensation Group is out with its “Long-Term Incentive Plan Report” for the “Clearbridge 200” – which consists of 100 mid-cap companies in the S&P MidCap 400 Index and 100 large-cap companies in the S&P 500 Index. The 18-page report looks at design changes from 2020 to 2023, including practices around:
– LTI Vehicles
– Time-Vested Award Vesting Period & Schedule
– Performance-Vested Award Design
– Relative TSR Goal Setting
A big question in the wake of the new Dodd-Frank clawback rules is whether companies will shift away from tying most incentives to financial measures and stock price. For the period covered by this report, almost all companies used these types of metrics in their incentive plans, with relative TSR being most prevalent. Here’s an excerpt (with more detail in the chart on pg. 8):
Across both mid-cap and large-cap companies, stock price/TSR measures, followed by earnings measures (e.g., EBITDA), are most commonly used to measure long-term performance (either as a weighted measure or as a modifier). In addition to increasing shareholder alignment, stock price/TSR goals are generally easier to establish in uncertain times compared to financial goals.
When companies use a stock price/TSR measure, the overwhelming majority use relative TSR. In 2023, 55% of mid-cap and 70% of large-cap companies used relative TSR as a measure.
Meredith is out with a new episode of “The Pay & Proxy Podcast”! In this 21-minute episode, she is joined by Sheri Adler at Troutman Pepper to discuss equity award delegations in Delaware. Topics include:
1. The differing requirements for option/RSU and restricted stock award delegations in Delaware before the 2022 DGCL amendments
2. The welcome changes to the DGCL in August 2022
3. How the further amendments in 2023 addressed interpretive issues
4. Remaining areas of ambiguity
5. Best practices for equity award delegations, documentation and recordkeeping
6. Avoiding the constraints of Sections 152 or 157 by delegating to a one-member board committee
WTW’s Global Executive Compensation Analysis Team recently conducted a study of the 100 largest U.S. mergers from 2018 to 2022 focused on the use of special synergy awards. Of the companies surveyed:
– 14% granted special synergy awards to NEOs
– Of that 14%, 5% granted special synergy awards to NEOs and had synergy goals in their STI programs
– 23% only included synergy goals in their STI programs
The WTW team stressed that these special awards are only appropriate in limited circumstances — the annual executive compensation package should generally provide sufficient alignment with long-term strategy. When used, the disclosure of these awards needs to clearly articulate their purpose and highlight that they are non-recurring. With respect to the circumstances and structure of these awards, when used:
– 79% were granted in mergers that exceeded the median deal value of the survey ($13.8 billion)
– They were typically in the form of PSUs, but performance shares, performance stock options, performance cash awards or a combination were also used
– The vesting periods were typically between three and four years
– 57% included synergy and financial goals and 43% used only synergy goals (cost reduction or revenue improvement)
Earlier this month, the IRS updated its Internal Revenue Manual to permit the use of e-signatures on certain forms, including Code Section 83(b) elections, indefinitely. The temporary permission for e-signatures granted during the pandemic was set to expire on October 31. Here’s a snippet from a Shearman & Sterling alert regarding requirements for e-signatures:
The IRS’ electronic signature policy for Section 83(b) Elections and certain other specified tax forms provides that electronic and digital signatures may take various forms and can be created by different technologies. No specific technology is currently required for Section 83(b) Elections (though specific technologies may be required by the IRM in the future). Accordingly, acceptable forms of electronic signature for Section 83(b) Elections should include a name typed into a signature block, a scanned image of a handwritten signature or a signature created by third-party software (such as DocuSign).