Realizable Pay in Quantitative Say on Pay Evaluation: ISS is considering adding realizable pay to its quantitative pay-for-performance methodology. ISS currently discloses a realizable pay analysis that is used in its qualitative evaluation of company pay programs. According to the survey, 87% of investor respondents supported the use realizable pay contrasted to 54% of non-investors. Of the respondents who supported ISS’s use of realizable pay, the survey asked how ISS should apply the metric to evaluate plans. When asked what realizable pay should be used for in the quantitative evaluation, investor respondents almost evenly indicated ISS could use the measure to mitigate concerns regarding pay-TSR misalignment (35 of the 77 investors), to mitigate concerns regarding excessive pay (34 investors), and that realizable pay could exacerbate concerns regarding excessive pay to for moderate performance (34 investors). Companies and other non-investors that favored realizable pay use favored using it for mitigating concerns regarding pay-TSR alignment (95 non-investors), and to a slightly lesser extent for mitigating excessive pay concerns (85).
Gender Pay Equity: ISS requested input on how it should continue to approach gender pay equity proposals and disclosure policies. Unsurprisingly, 60% of investors responded that companies should be disclosing their gender pay gap information contrasted to 67% of non-investors which said that companies should not be making the disclosure. Only 17% of non-investors said companies should be disclosing gender pay gap data. In the absence of gender pay disclosures, 53% of investors and 58% of non-investors aid concerns could be mitigated by robust disclosures of compensation philosophy and diversity and inclusion principles. A third of investors felt that there was no disclosure which could mitigate gender pay gap concerns.
Non-Employee Director Pay: The application survey asked how ISS should identify Non-Employee Director (NED) pay outliers and what to do once an outlier has been identified. Regarding the factors which should be considered in evaluating NED pay, investors favored comparing NED pay relative to the four-digit GICS industry Group peers (45 investors) or relevant stock market index peers (41 investors). Companies however, largely supported a comparison between the company and stock market peers. For investors, excessive perquisites were identified as the top choice for whether a directors program presents a governance concern followed by performance-based equity and retirement programs. For the question of what ISS should do if there are “multiple years” of high NED pay at a company, both investors as well as companies both stated that the proxy advisor should identify the issue but generally not issue an adverse voting recommendation in the first year.
We expect to see the ISS draft policy changes in the coming weeks, with final changes by the end of November.