October 25, 2021

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October 22, 2021

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ISS Announces Updates to Its Pay-for-Performance Evaluation for US and Canadian Companies

On November 8, Institutional Shareholder Services (ISS), a leading proxy advisory firm, announced a number of updates to its 2017 pay-for-performance evaluation process for US and Canadian companies. The updates include the following:

  • Relative Financial Performance Evaluation for U.S. and Canadian Companies.For shareholder meetings held on or after February 1, 2017, ISS will supplement its total shareholder return metric (TSR) with an analysis of six additional financial measures to evaluate performance in the context of its executive compensation assessment. Specifically, ISS will compute a company’s three-year performance, relative to its ISS peer group, of: (1) return on equity, (2) return on assets, (3) return on invested capital, (4) revenue growth, (5) growth in earnings before interest, taxes, depreciation and amortization; and (6) growth in cash flow from operations. These metrics, along with relative compensation levels and an overall weighted financial performance metric (which reflects the alignment between three-year financial performance and three-year granted pay), will be displayed in a new standardized table in ISS’s proxy research report for the applicable company. In 2017, these calculations will be used solely in ISS’s qualitative pay-for-performance evaluations and will not affect quantitative analysis of a company’s performance. ISS has left open the possibility that such metrics will be extended to quantitative evaluations in 2018 or beyond.
  • Relative Degree of Alignment Test. ISS’s (existing) “relative degree of alignment” test (which measures long-term alignment of CEO compensation and TSR relative to peers) will only apply to companies with at least two full years, rather than one full year, of trading data and financial results as a public company.
  • Peer Groups for Canadian Companies. For Canadian companies subject to ISS’s quantitative pay-for-performance screens, ISS will change the way it constructs company-specific peer groups. When creating an ISS peer group for a specific Canadian company, ISS will now incorporate the company’s self-determined peer group (much like it has for US companies since 2013).
  • Peer Submission Window for U.S. and Canadian Companies: US and Canadian companies that hold shareholder meetings between February 1, 2017 and September 15, 2017 may submit self-determined peer groups for the most recently completed fiscal year during the period from November 28 to December 9.

Also on November 8, ISS announced changes to its pay-for-performance and peer group construction methodologies for European companies.

For the full text of ISS’s announcement of the above-described updates, click here. ISS has indicated that it will publish additional information regarding the announced updates in the coming weeks.

©2021 Katten Muchin Rosenman LLPNational Law Review, Volume VI, Number 316
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About this Author

Jonathan D. Weiner, securities, transactional lawyer, Katten Muchin Law firm
Associate

Jonathan Weiner concentrates his practice in securities, transactional and general corporate matters. He has represented investors and issuers in public and private financings (including private investments in public equity), tender offers, recapitalizations and going private transactions, as well as targets and acquirers in mergers and acquisitions. He also advises clients on a day-to-day basis regarding corporate governance, securities law compliance, disclosure and other general corporate matters. Jonathan has counseled a wide array of businesses, ranging from...

212-940-6349
Mark D. Wood, corporate securities lawyer Katten Muchin Chicago Law firm
Partner

Mark D. Wood is head of Katten's Securities practice and concentrates in corporate and securities law. Mark represents public companies, issuers and investment banks in initial public offerings (IPOs) and other public offerings, private investment in public equity (PIPE) transactions, debt securities and other securities matters.

Mark also represents clients in complex corporate transactions, including tender offers, mergers, acquisitions, dispositions, going-private transactions, private equity investments, joint ventures and...

312-902-5493
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