Most equity-based performance awards for employees that will vest at the end of 2020 were granted well before the COVID-19 pandemic began (in fact, many were granted two years or more before the pandemic), and none of the performance metrics for these awards likely anticipated the havoc the pandemic has caused to the companies’ financial and stock performance. In many cases, the pandemic has rendered these equity-based performance awards worthless to employees because the performance metrics are not even remotely achievable. Yet, employees have been working harder than ever to meet the challenges of the pandemic. Some employers looking for ways to continue to reward and retain employees are eyeing modifications of existing equity-based performance awards to either lower the target and stretch performance goals or to eliminate the performance requirement completely, at least for awards vesting in 2020 (making the awards solely time-based). Before proceeding with any such modifications,… Continue Reading
Boards and compensation committees will be reevaluating their incentive compensation arrangements in light of the COVID-19 pandemic and the resulting market uncertainty. Both long-term and short-term incentive plans can lose motivational and retention value if the performance goals are unachievable or if they do not align with market reality. Companies that have not yet established performance goals for their 2020 equity and bonus awards should carefully consider market conditions and shareholder perception before establishing goals, focusing on motivating their executives with pay for performance that aligns with shareholders’ interests, while giving the company flexibility to navigate through uncharted territory. To the extent possible, companies should also consider delaying the issuance of incentive compensation awards until there is more stability in the business and in the financial markets. Companies that have already established goals for their 2020 awards (or that are evaluating the continued effectiveness of performance goals for prior year… Continue Reading
On March 26, 2020, Glass Lewis released its governance report discussing its approach to corporate governance in light of the COVID-19 pandemic. According to the report, Glass Lewis expects all governance issues to be impacted by COVID-19 and will be taking a pragmatic approach to corporate governance and voting on affected proposals, prioritizing disclosure and timing and certainty on such matters, and exercising discretion as appropriate. Glass Lewis states in the report that: “The stark reality is that for many workers, including executives, they should not expect to be worth as much as they were before the crisis, because their free market value as human capital has now changed. There is a heavy burden of proof for boards and executives to justify their compensation levels in a drastically different market for talent . . . Trying to make executives whole at even further expense to shareholders and other employees is… Continue Reading
On December 14, 2018, Institutional Shareholder Services (“ISS”) issued its updated FAQs related to its U.S. Compensation Policies, effective for shareholder meetings occurring on or after February 1, 2019. There were some notable updates with respect to executive compensation and nonemployee director compensation, which are briefly discussed below. Problematic Pay Practices ISS had previously identified certain “problematic pay practices” that are likely to result in a negative say-on-pay vote recommendation. ISS has issued some notable updates: Impact of Code Section 162(m) Repeal. In light of the Code Section 162(m) repeal, ISS added, as a problematic pay practice, a shift away from performance-based compensation to discretionary or fixed compensation elements. Excess Termination Payments. ISS stated that new or materially amended agreements that provide for excess termination payments (no longer limited to change in control based termination payments) are problematic. Generally, termination payments are problematic if they exceed three times an executive’s… Continue Reading
Institutional Shareholder Services Inc. (“ISS”) recently released the results of its annual global voting policy survey. Respondents include institutional investors, corporate issuers, as well as consultants and advisors to public companies. Survey responses provide helpful insight into the current views of influential institutional investors in addition to signaling changes to ISS voting policies. This year’s survey was light on executive compensation related questions but did provide helpful feedback on two topics. (1) Frequency of Say-on-Pay: 66 percent of institutional investors favor annual say on pay votes, consistent with current ISS policy. (2) Pay for Performance Metrics: 79 percent of institutional investors support the incorporation of financial metrics, in addition to total shareholder returns, into the ISS pay-for-performance models that identify potential misalignments between CEO pay and company performance. The three most popular alternatives were return on investment metrics (e.g., return on invested capital), return metrics (e.g., return on assets or… Continue Reading
Institutional Shareholder Services (“ISS“) has issued its U.S. Equity Plan Scorecard (“EPSC“) frequently asked questions for 2015, effective for meetings on or after February 1, 2015. For the 2015 proxy season, ISS intends to take a “more nuanced consideration of equity incentive programs” instead of applying a rigid pass/fail methodology, that will consider a range of positive and negative factors based on three “pillars” of plan cost, plan features, and grant practices. However, the new methodology will continue to result in “Against” recommendations for plan proposals that feature certain “egregious characteristics” (such as authority to reprice stock options without shareholder approval, single trigger change of control vesting, and tax gross-ups). Proposals related to the adoption or amendment of stock option plans, restricted stock plans, omnibus stock plans, and stock appreciation rights plans (stock-settled) will be evaluated under the EPSC policy. A copy of the FAQs may be found here.
Institutional Shareholder Services Inc. (“ISS”) recently announced the launch of a new Equity Plan Data Verification portal that covers information on equity-based compensation plans that U.S. companies submit for approval by shareholders. Companies may now access the portal to review and update key datapoints that are evaluated by ISS before ISS issues its proxy recommendation. Companies planning to feature an equity plan on their proxy ballot, and will file their definitive proxy materials with the SEC after September 8, 2014, are eligible to participate in Equity Plan Data Verification. Any such company is encouraged to register with ISS to receive notification of the availability of company data, and upon notification, the company will have two business days to verify the data and/or request modifications. More information, including FAQs, can be found here.
Institutional Shareholder Services, Inc. (“ISS”) issued draft policies for 2013 relating to board governance and to executive compensation. ISS is proposing the following changes: Recommend a vote “against” or “withhold” from the entire board if the board failed to act on a shareholder proposal that received the support of a majority of shares cast (rather than outstanding) in the previous year. Use a company’s selected peers with size constraints as an input to its peer group methodology Incorporate a comparison of realizable pay to grant date pay as part of the qualitative evaluation of pay-for-performance alignment. Add pledging of company stock as a factor that may lead to negative recommendations under the existing problematic pay practices evaluation. Include existing change-in-control arrangements maintained with named executive officers in its current policy on Golden Parachute proposals (rather than focusing only on new or extended arrangements). A copy of the draft policies is here.
Institutional Shareholder Services (“ISS”) released new FAQs on January 25, 2012. The FAQs cover ISS’ policy on pay for performance, management say-on-pay responsiveness, and equity plans. The FAQs are intended to provide high-level guidance regarding the way in which ISS’ Global Research Department will generally analyze certain issues in the context of preparing proxy analysis and vote recommendations for U.S. companies. The FAQs can be found here.
Institutional Shareholder Services Inc. (“ISS”) recently released its 2012 corporate governance policy update which includes changes to the way it evaluates executive pay-for-performance to ensure alignment between compensation and shareholder goals. The new ISS methodology includes measuring both peer group alignment and absolute alignment. Key factors that the ISS will evaluate include a company’s one- and three-year total shareholder return (“TSR”) relative to its industry group, and whether the CEO’s total compensation is aligned with the company’s TSR in both the short and long-term. ISS’s 2012 policy can be found here.