A recent edition of Governance Insights from ISS Analytics featured a lead article (now posted separately on their website) by everyone’s favorite ISS representative John Roe, an annual speaker at the NASPP and other conferences.

John Roe labels these as “venial sins,” as distinguished from the “mortal sins” (see below), to indicate that “they are based on opinions and observations formed after several years of experience reviewing executive compensation disclosures and discussing compensation practices with investors. None of these opinions reflect an official ISS position or a preview of upcoming ISS voting policy, but they are meant to highlight potential risks related to otherwise sound incentive structures, as observed by the author.” And the seven venial sins are:

  1. Placing excessive focus on TSR-based awards
  2. Complicating the compensation program with too many metrics
  3. Seeming to allow management and consultants drive the executive compensation agenda and program
  4. Blurring the line between retentive pay components and incentive pay components
  5. Paying insufficient attention to director or NEO (non-CEO) compensation, particularly when investors may find it noteworthy
  6. Suffering from “snowflake syndrome” (summed up by the quote: “But we’re different”)
  7. Assuming that everyone looks at compensation programs through the same lens

The length of this Blog does not allow us to go into too much more detail on these, but we expect to have an article on them out soon.

Additionally, ISS included it’s seven “mortal sins” of executive compensation – that are most often associated with adverse vote outcomes, which include (in no particular order):

  • An unresponsive or ineffective compensation committee
  • The granting of significant “special” awards without explanation or justification
  • Escalatory pay benchmarking practices, including “aspirational” peer groups and above-median targeting
  • Poor disclosure of performance metrics and goal mechanics
  • Lack of rigor on incentive targets
  • Multiple payouts on similar performance metrics
  • Employment agreement issues, such as renewed excise tax gross-ups or guaranteed multi-year awards

It’s always a good idea to keep abreast of ISS “likes” and “dislikes.”