ISS recently posted updated FAQs on peer group selection methodology and the issuer submission process. As usual, ISS made our lives a little bit easier by highlighting any key changes compared to the FAQs applicable during last proxy season. In addition to a new question on externally managed issuers, ISS also added language to the question about publicly disclosing the updated peer group information submitted to ISS, as follows (emphasis added to highlight the new language):
ISS does not require that companies make any special public disclosure of their updated peer group information at the time it is submitted to ISS. We would expect, however, that this list of submitted companies matches the benchmarking peers that are disclosed in the upcoming proxy. ISS encourages issuers to disclose in the proxy the stock ticker for each peer alongside the peer company name to provide for greater certainty that ISS and investors are considering the correct peers.
If the peers submitted to ISS through this process are different from the peers disclosed in the upcoming proxy, ISS may apply additional scrutiny to this variance as part of its pay-for-performance analysis. If there is a significant unexplained discrepancy between submitted peers and those disclosed in the proxy, ISS may in its discretion remove a company from a future peer submission process.
The first change is an easy action item for companies: add tickers to your proxy peer group disclosures if you don’t already have them. The second change may not be quite as simple. ISS submissions often don’t involve the same controls as proxy disclosures, and the folks charged with submitting an updated peer group to ISS may not have been in the room with the committee and comp consultant when the peer group was set.
Add the timing lag — by the time you’re submitting your peer group to ISS, you may be in the thick of reviewing peers for the next fiscal year or already have a new peer group — and I can imagine how this could get mixed up. So, double and triple check your peer group submissions to ISS lest you risk losing the ability to submit your peers in the future. That being said, I know some companies choose to opt out of the peer group submission process altogether, particularly when peers haven’t changed much — or at all — since last year’s proxy.
– Meredith Ervine, CompensationStandards.com, March 20, 2023