The Advisors' Blog

Earlier this month, I shared a reminder that ISS wants companies to start disclosing performance goals that will apply to long-term incentive awards for the upcoming performance period – not just the completed year that the proxy statement primarily discusses. This is most relevant when there’s a quantitative pay-for-performance misalignment.

Is anyone doing this? Compensation Advisory Partners reviewed recent disclosures of the 100 largest U.S. public companies and found:

Most companies do not disclose forward-looking financial targets that cover future years. Companies often determine that disclosure of forward-looking business plan targets exposes the company to competitive harm. Disclosing forward-looking goals can also put companies in a precarious position when there is a disconnect between internal budget scenarios built on non-GAAP metrics and accounting scenarios that are reported externally under GAAP.

CAP found that the degree of disclosure varies based on whether the performance targets are relative or absolute:

– 30% of companies with absolute performance metrics in the LTI plan disclose forward-looking goals

– 68% of companies with relative performance metrics disclose forward-looking goals – e.g., 50th percentile rTSR achievement will result in payout at target levels

The CAP team predicts that the prevalence of these disclosures may increase over time – especially for relative metrics with non-sensitive performance-payout structures. Companies will have to balance competitive concerns with say-on-pay expectations and may have a more difficult decision if they’re already under the “pay disconnect” microscope for other reasons.

– Liz Dunshee