Last week, ISS issued a press release about the results of its latest benchmark survey (here’s the 22-page summary of the results). Nothing earth-shattering this year. We should see this year’s policy updates from ISS next month.
Probably the most interesting result from the survey relates to the ratio of performance-based to time-based equity awards in the event of a quantitative pay-for-performance (P4P) misalignment. ISS’ qualitative review in the P4P analysis generally views a predominance of performance-conditioned equity awards as a positive mitigating factor, while the predominance of time-vesting equity awards is generally considered a negative exacerbating factor in the event of such a P4P misalignment.
In response to a survey question that asked for views on this, among the 199 investor respondents:
- 43% supported the continuation of current ISS policy regarding pay-for-performance at US companies, “which considers a predominance of time-based equity awards to be a negative factor.”
- 31% favored a revision of the current approach.
And 70% of non-investor respondents (126 companies) favored a revised policy approach.
Here’s more gloss from page 5 of the summary: “For those who selected the option to ‘revise the current approach’ in light of an extended vesting period, the survey asked what length of extended vesting period for time-based equity awards would be sufficient to consider such a feature as a positive mitigating factor in the context of a P4P misalignment.
In this case, strong support was displayed by both investors (66 percent) and non-investors (58 percent) for a vesting period of ‘at least five years.’ When asked whether a meaningful post-vesting holding period should be present to consider such awards a positive mitigating factor, more than two-thirds (68 percent) of investor respondents said ‘yes’ to such post-vesting holding provisions, with non-investors responding in the opposite direction with 73 percent choosing the answer option that ‘no, a post-vesting holding period requirement is not necessary.’”
Authored by
Broc Romanek