Doc of the Day: ISS Outlines New Pay-For-Performance Evaluation Methodology

Just in time for the 2012 proxy season, Institutional Shareholders Services has issued a white paper outlining its new approach to evaluating pay-for-performance in 2012. Ropes & Gray provides an in-depth look at the new methodology, and why public companies should follow it as they design their compensation programs and prepare their proxy disclosures:

“A pay-for-performance disconnect was the single most important factor in ISS’ decision last year to recommend a ‘No’ vote on management’s say-on-pay proposal. Understanding how ISS reaches its conclusion will be important for companies both in designing pay packages as well as in crafting disclosure that tells the company’s side of the pay-for performance story.The new methodology begins with a quantitative assessment that identifies pay-for-performance disconnects based on relative CEO pay and performance versus peer companies over one- and three-year periods and an absolute evaluation of CEO pay trends versus total shareholder return (TSR) performance over a five-year period. The quantitative evaluation is followed by an in-depth qualitative review to determine the cause of the disconnect and to identify any mitigating factors.”

Read the full update, ISS Issues White Paper Outlining New Methodology for Evaluating Pay-For-Performance, from Ropes & Gray LLP»