The Advisors' Blog

Earlier this month, I shared some data on how companies are using one-time awards and noted that structural considerations are key to mitigating investor concerns. This Semler Brossy article (which Liz blogged about last month) compares the size of a special grant to the likelihood of an “against” recommendation from ISS. Not surprisingly, smaller grants, especially grants made to NEOs other than the CEO, are more likely to fly under the radar (i.e., not raise concerns). 

Proxy advisors generally scrutinize special awards, but they do not uniformly recommend ‘Against’ programs that include them. Most awards are noted but do not have a substantial impact. Award size is a major indicator of whether a particular award will draw an ISS ‘Against’ recommendation. Smaller awards, while not immune from criticism, are accepted as a necessary reality by investors. Larger awards receive significantly less leeway, though those do not guarantee an ‘Against’ recommendation.

Among the awards Semler Brossy reviewed, if the award was less than half of target compensation, ISS recommended ‘Against’ about 25.8% of the time. Once the award was greater than three times target annual compensation, ISS recommended ‘Against’ 68.1% of the time. Many of the smaller awards were not the direct “cause” of the low vote but were instead caught up in broader circumstances, such as a pay-for-performance misalignment or an outsized award for another executive.

Over 1x target compensation seemed to be the level at which ISS was more likely than not to recommend against say-on-pay.

– Meredith Ervine