Last week, ISS opened its “Annual Benchmark Policy Survey.” As the name implies, this is only a survey, a series of questions that ISS uses to gauge its clients’ interests. However, since ISS selects the questions, the policy survey also indicates ISS’s areas of focus. This year, ISS offers two separate policy surveys: one on a broad range of topics, including ESG metrics in compensation, racial equity audits, and treatment of companies with poor governance provisions such as multi-class shares, and another survey that specifically focus on climate-related questions. Between the two surveys, only three of the questions relate to executive compensation.
ISS’s first question observes that non-financial environmental, social, and governance (ESG) performance measures and incentives in executive pay plans have become more prevalent in the past few years and asks whether the survey participant believes that incorporating these metrics into executive compensation programs is an appropriate way to incentivize executives. For those who believe that ESG metrics should be incorporated in executive pay plans, a follow-up question asks whether the survey participant believes that they should be used in short-term incentive plans, long-term incentive plans, or both.
The second question posits that CEO pay is an increasingly important factor for many investors in evaluating executive compensation programs and allows that ISS’s quantitative pay-for-performance screen currently evaluates one-year CEO pay as a multiple of the median of CEO peers. The question for survey participants is whether ISS’ pay-for-performance screen should include a longer-term perspective (for example, a three-year assessment) of CEO pay.
Finally, ISS viewed mid-cycle changes to long-term incentive programs as a problematic response to the pandemic, since “many investors consider that long-term incentives should not be adjusted based on short-term (i.e., less than one year) market disruptions.” Acknowledging that some industries continue to incur severe negative economic impacts from the pandemic, the survey asks how the survey participant views mid-cycle changes to long-term incentive programs for companies incurring long-term negative impacts?
-Mike Melbinger, CompensationStandards.com August 2, 2021
