On Monday I blogged on ISS’ launch of its Annual Policy Survey and discussed part one of the survey, which covered a small number of high-profile governance topics. It had very little on executive compensation. The second part of the survey is the ISS Policy Application Survey, a more expansive and detailed set of questions with two more items relating to compensation.
- ISS’s current Pay-for-Performance (P4P) methodology uses TSR in addition to the GAAP metrics ROIC, ROA, ROE, and cash flow from operations. However, since many companies and investors use non-GAAP metrics to evaluate financial performance, ISS is considering supplementing or replacing the four GAAP metrics with Economic Value Added (EVA) to improve its assessment of financial performance and P4P.In the survey, ISS asks whether “your company” supports the use of EVA as part of P4P, and if so, how should it be included?
- As we have noted previously, beginning in 2019, ISS recommends against compensation committees where elevated non-employee director (NED) pay persists over multiple years without compelling justification.In the survey, ISS asks companies to indicate what they believe could constitutes a sufficient explanation for multiple consecutive years of outlier director pay, e.g., payments to reward for performance or “extraordinary service,” payments in consideration of scientific or other specific topical experience, and special payments related top corporate transactions or investigations.
This is only a survey, but it is perhaps the best chance companies have to express their opinions on ISS future policy changes. The Policy Application Survey will be open until September 21 at 5 p.m. Eastern. Results of the surveys will be published after they close. As in years past, ISS will subsequently open a comment period for feedback on proposed changes to policy.