Seemingly overnight, the COVID-19 pandemic gripped the World, and many business forecasts and operating budgets were severely impacted. Before the end of the first quarter, incentive plan performance goals were suddenly deemed unattainable. While most companies are not currently considering adjusting in-cycle incentive plan performance goals, due either to concerns about external optics or a lack of sufficient context, assessing performance for the purposes of incentive plan payouts will be a deeply deliberated topic during year-end pay discussions.  We expect that for many companies, incentive plan performance assessment is likely to include the application of backward-looking discretion, informed by a comprehensive review of a variety of quantitative and qualitative factors.  This article provides an analytical approach to support the application of discretion.

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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. 

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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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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:
a)  Scream;
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. 

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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.

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​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 2018 filings. We examine overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.

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If your company's Say-on-Pay (SOP) vote received low support (below 70% for ISS and below 80% for Glass Lewis), your company will need to respond appropriately in next year's proxy or face even lower support and, possibly, vote recommendations against directors.

This Client Briefing looks at what the proxy advisors want to see in your next proxy if your company received low support on its SOP vote, outlines a typical response plan, and suggests ways to ensure your company is viewed as being responsive to the low SOP vote in next year's proxy. Finally, summary statistics for Russell 3000 companies from 2012—2018 are provided, which detail the average and median SOP vote support levels, a breakout of the SOP vote support levels (including the SOP failures rates), and ISS vote recommendations for and against SOP proposals.

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After much anticipation, CEO Pay Ratio data began appearing in proxy statements this year. With the new trove of disclosures available, it’s natural for observers of executive compensation to search for trends in the data, despite seemingly universal agreement that few, if any, meaningful insights may be found. What insights are to be gleaned? What conclusions may be drawn? What does it say about pay? The purpose of this Client Briefing is to provide guidance on what the data says—and what it doesn’t. 

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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 2016 filings. We examine overall prevalence of RTSR, differences in usage between industry sectors, and key design elements of these plans.

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In this Client Briefing, we present an assessment of three pay-for-performance methodologies: Realizable, Summary Compensation Table, and ROX, Exequity’s preferred methodology. In assessing how well executive compensation and shareholder returns align under each analysis, we illuminate the key shortcomings of Realizable pay (as defined by The Conference Board) and Summary Compensation Table pay (as used by proxy advisors). Using ROX, we find that executive compensation at S&P 500 companies is very strongly aligned with returns to shareholders. We also find that Realizable pay and Summary Compensation Table pay align relatively poorly with shareholder returns, resulting in pay-for-performance “disconnects” where under ROX none may exist. ROX provides compensation committees a powerful, comprehensive, and reliable tool to illustrate the link between executive pay and performance.

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This Client Briefing examines some unintended consequences that can occur when companies adopt changes to their severance and long-term equity programs. Specifically, the Client Briefing looks at the interaction of several design changes that have been touted by activist shareholders as reflecting good corporate governance, and implications for the underlying purposes of these programs.

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This Client Briefing looks at the SEC requirements for the CD&A, discusses why a CD&A template is not provided, provides a sample outline for the CD&A, and provides a checklist of key questions companies can use as they prepare their own CD&As, including questions that will be critical to address.

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This Client Briefing cuts to the chase and provides only the checklist of key questions companies can use as they prepare their own CD&As, including questions that will be critical to address.

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