ISS Issues White Paper Outlining New Methodology For Evaluating Pay-For-Performance

Article by Ropes & Gray LLP's Executive Compensation and Securities & Public Companies Practices

OVERVIEW

On December 20th Institutional Shareholder Services (ISS) issued a white paper outlining its new approach to evaluating pay-for-performance in 2012. 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