The economic fallout resulting from the COVID-19 pandemic has rendered obsolete many executive incentive plans, and compensation committees are expected to apply significantly more discretion for 2020 than is typical. This Client Briefing provides a framework for the use of discretion in incentive plans. A logical framework may help companies avoid arbitrary and confusing outcomes.
Click here to download this Client Briefing in PDF.
Last Updated: April 6, 2020
Note: Contact your Exequity Advisor for detailed information underlying these summary statistics and for special data cuts.
While it is safe to say every economic crisis is different, it does not seem fair to compare this crisis to any other. The global impact of the COVID-19 pandemic is unprecedented in modern times. In turn, companies are responding with unprecedented actions. This Client Alert describes how the repercussions of COVID-19 are impacting pay programs, based on data gathered from public filings as of April 1, 2020. We will continue to update this data throughout the pandemic as companies respond, at https://www.exqty.com/newsroom/covid-19-impact-on-pay-summary-statistics.
Click here to download this Client Alert in PDF
Recently, both Glass Lewis and ISS issued their U.S. policy updates for the 2020 proxy season. None of the updates are significant in and of themselves but are likely to impact a select group of companies that have not yet acted with respect to current corporate governance best practices.
This Client Alert looks at both the Glass Lewis and ISS updates as well as ISS' preliminary compensation FAQs.
Click Here to download the Client Alert in PDF.
Trends in Relative TSR Presentation to NASPP Michigan, Including Russell 3000 Auto & Components Statistics
On November 5, 2019, the SEC met and issued two sets of proposed changes to existing rules. One impacts proxy advisors (known in SEC-speak as "proxy voting advice businesses"), such as Institutional Shareholder Services, Inc. and Glass, Lewis & Co., and the other proposed rule impacts the requirements for shareholders to submit proposals.
This Client Alert summarizes these proposed rule changes.
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In this Client Update, we suggest that compensation committees and boards should have confidence in using their business judgment to identify key measures for evaluating company performance in incentive plans. Using reported earnings measures highlighted by Amazon.com, Inc., we provide a demonstration of how financial performance can be very closely tied to shareholder value creation over time. We also compare EVA (ISS’s latest preferred approach) to stock price over this same period. We find using Amazon’s reported financial performance to be a very strong gauge of shareholder value creation. If the Amazon example is any indication, compensation committees should feel comfortable in applying their own business judgment, rather than feeling the need to turn to ISS’s one-size-fits-all notion that EVA presides over all.
Ben Burney spoke to the Chicago chapter of NASPP about trends in relative TSR. Topics covered include overall prevalence and peer group usage, among other topics. The presentation also included summary results of a Monte Carlo simulation of the S&P 500. The graphic depicts how companies in some sectors may be expected to outperform or underperform depending on market conditions.
Download the presentation here.
In this Client Briefing, Exequity explores the usage of relative total shareholder return (RTSR) within long-term incentive plans across S&P 500 companies using data from 2019 filings. We examine overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.
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This Client Briefing looks at the steps companies should consider if they had a low or failed Say-on-Pay (SOP) vote in 2019. The Client Briefing discusses SOP vote results among the Russell 3000 as well as gives examples of companies whose SOP votes failed in 2018, yet were able to secure approval above the average 90.9% support level in 2019.
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On August 21, 2019, the Securities and Exchange Commission (SEC) issued guidance to proxy advisors regarding the applicability of the proxy rules to proxy voting advice. The SEC also issued separate guidance to investment advisers regarding their proxy voting responsibilities. Combined, this guidance likely will impact both proxy advisors and how investment advisers handle proxy voting, which, in turn, could significantly change the proxy voting landscape for public companies.
This Client Alert reviews this SEC guidance as well as some of the potential impacts.
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In Exequity’s August 20, 2019 Client Briefing, ISS, EVA, and Economic Voodoo, we responded to contentions made by Institutional Shareholder Services (ISS) and author Bennett Stewart (ISS Senior Advisor) in the white paper EVA, not EBITDA: A Better Measure of Investment Value. ISS and Mr. Stewart identify economic value added (EVA) as a “superior” measure of “investment value” over EBITDA. Readers may recall, EVA is ISS’s latest preferred approach to performance measurement. In contrast to ISS’s analyses, which appear to have been conducted based on data as of a single point in time, we described how EBITDA was better correlated over time with stock price and total enterprise value (TEV) than EVA.
This Client Update is a follow-up to ISS, EVA, and Economic Voodoo and offers further insights into the relationship between EVA and EBITDA versus stock price and TEV.
Read more below or click here to download a copy of this Client Update.
Institutional Shareholder Services (ISS) recently introduced Economic Value Added (EVA) as its latest approach to measuring company performance. Now a purveyor and proponent of EVA, ISS is marketing its product, including a recent publication, EVA, not EBITDA: A Better Measure of Investment Value. This Client Briefing examines ISS’s contention that EVA is a superior gauge of “investment value” to EBITDA.
Download the Client Briefing here (PDF).
Download information on the EVA formula we used and companies analyzed here (PDF).
When you hear the words “Monte Carlo simulation,” do you:
b) Pack your suitcase—Mediterranean vacation! (Simulation? Nah!); or
c) Ponder the link between 19th century botany and modern valuation techniques?
If you chose a) and would rather b), read this Client Briefing to c).
Monte Carlo simulations are often only marginally understood by decision makers—and trying to comprehend them makes some want to scream. But while Monte Carlo simulations are complicated, the way we explain them does not have to be. This Client Briefing offers a plain-English guide to Monte Carlo simulations, which are used to value market-based performance awards (e.g., relative TSR). The goal is to help companies understand the implications of design choices on valuation outcomes in a conversational manner.
Click here to download the Client Briefing (PDF).
This Client Briefing provides an overview of ISS's EPSC model which ISS uses to review equity compensation plan proposals to develop its vote recommendations for such proposals. The Client Briefing looks at the three categories of the EPSC model and indicates where companies are most likely able to impact EPSC model outputs. The Client Briefing also discusses the timing of running the EPSC model and other considerations for developing a good equity compensation plan. If your company is thinking about taking a proposal to shareholders to request more shares and ISS has significant influence on your institutional shareholders, this Client Briefing will help you understand how ISS will review your equity plan proposal and develop its vote recommendation.
Originally Published September 13, 2018
Updated February 12, 2019 to reflect ISS Policy Updates for the 2019 Proxy Season
Click here to download the Client Briefing (PDF)
In December 2018, ISS released two documents covering frequently asked questions (FAQs) on final U.S. Compensation Policies and U.S. Equity Compensation Plans. The FAQs on Equity Compensation Plans also contained the ISS burn rate benchmarks applicable to meetings on or after February 1, 2019. This Client Alert reviews the changes in the FAQs and includes the 2019 ISS burn rate benchmarks.
Click Here to download the Client Alert (PDF)
On December 18, 2018, the SEC announced it had finalized the hedging rules required by the Dodd-Frank Act. This Client Alert discusses the new rules and the timing of their application.
Click HERE to download the Client Alert (PDF)
On November 19, 2018, ISS released its policy updates for the 2019 proxy season. Then on November 21, 2018, ISS issued a set of preliminary FAQs on Compensation Policies for 2019. These policy updates and FAQs will apply to shareholder meetings on and after February 1, 2019.
This Client Alert examines the compensation-related changes to ISS policies for 2019 as well as the preliminary Compensation FAQs.
Click Here to Download the PDF of this Client Alert.
In November 2017, S&P Dow Jones Indices and MSCI Inc. announced revisions to the Global Industry Classification System (GICS) to be effective after the close of business on September 28, 2018. The most significant of the changes to GICS was to the Telecommunication Services sector, which has been renamed and broadened in its scope.
We updated the summary statistics of the 2018 Relative TSR Client Briefing reflect the updated GICS classification. Communication Services companies show overall RTSR prevalence of 41%. See the link below for the updated statistics.
2018 Relative TSR Statistics—GICS Structure Updates
This Client Briefing looks at the ISS policy regarding "excessive" non-employee director (NED) compensation. In a set of FAQs, ISS indicated that historically it has considered NED compensation at the top 5% of all comparable pay to be "excessive." Under the ISS policy, which ISS first started applying in 2018, if ISS finds a recurring pattern of excessive NED compensation magnitude in two or more years without a compelling rationale, ISS may recommend against those directors responsible for approving/setting NED compensation.
The Client Briefing provides the median and 95th percentiles for the S&P 500 and Russell 3000 (excluding the S&P 500) groups, in the aggregate and by industry. Companies can use these as a rough guideline to gauge whether they run any risk under the ISS "excessive" NED compensation policy.
Click here to download the Client Briefing (PDF)