As companies prepare for the 2018 proxy season, many companies are increasingly interested in whether and to what extent proxy advisory firms will incorporate pay ratio disclosures into their research summaries and say on pay and director vote analyses. While ISS has not yet revealed its approach, Glass Lewis recently published a client note on its perspective, stating: " At this time, ... we do not intend to incorporate the pay ratio into our assessment and analysis of Say-on-Pay proposals." The note continues, "we do not believe that [the pay ratio] is material for our analysis of the structures by which, and the disclosures of how, companies pay their NEOs." In doing so, Glass Lewis, the second largest proxy advisory firm, appears to have adopted a different tenor on the pay ratio than ISS.
Glass Lewis states that while proponents of the pay ratio argue "that this data point provides insights into how CEO pay levels have grown over the last few decades" and that "[s]ome see the ratio as a starting point for executive compensation reform," it also notes that the SEC took a narrower approach. Specifically, it quotes the SEC that the ratio will "allow shareholders to better understand and assess a particular registrant’s compensation practices and pay ratio disclosures rather than to facilitate a comparison of this information from one registrant to another.” Glass Lewis also explains the rationale of pay ratio opponents, including that the ratio is misleading, given the different markets in which rank-and-file workers and CEOs operate, and given the different methods by which these two employee groups are compensated" as well as the propensity for the ratio to be used as a "shaming tactic rather than as an informative data point for shareholders."
By contrast, in its recent policy application survey, ISS was clearly aiming to get feedback to support the two most common "uses" of the pay ratio - peer to peer comparison and a company-over-time analysis. Glass Lewis appears to not be endorsing those approaches -- at least for now.