ISS Details New Approach To Evaluate Pay-For-Performance

On December 20, Institutional Shareholder Services released a paper outlining its new methodology for evaluating U.S. pay-for-performance in 2012. As we discussed in a November post, the new approach, which will consist of an initial quantitative assessment and, where appropriate, an in-depth qualitative assessment, was first introduced in ISS' updated proxy voting guidelines for the upcoming year.

The quantitative review will include a relative evaluation, which compares CEO pay and performance to peers and is designed to identify outlier companies that have demonstrated a significant misalignment between CEO pay and company performance, and an absolute evaluation that looks at CEO pay trends relative to shareholder return. Where a pay-performance disconnect is identified, a qualitative assessment will follow to determine either the likely cause or mitigating factors in the misalignment.