As compensation committees grapple with year-end executive pay decisions, including whether and how to address the impact of the pandemic on incentive awards, proxy adviser Institutional Shareholder Services (ISS) has weighed in with 11 FAQs. The FAQs explain how ISS will apply its pay-for-performance qualitative analysis to COVID-related pay decisions. As in the past, an elevated concern from the quantitative screen will result in a more in-depth qualitative review.

 

Although support from ISS is important, it is more critical for companies to engage with their top shareholders as to what they would consider a reasonable response to the challenges presented by the pandemic. Compensation committees must consider multiple factors in making pay decisions — including the company’s business strategy, broader workforce actions and executive retention risks —even if decisions may negatively impact the company’s say-on-pay vote result.

Key themes

The FAQs indicate how ISS will apply its case-by-case approach to COVID-related pay decisions. While they offer few details as to what will be deemed “acceptable”, several themes emerge:

 

  • In light of the extraordinary circumstances of the pandemic and related current economic downturn, ISS may find actions it would normally view as problematic to be reasonable.
  • Long-term incentive award adjustments will generally be viewed less favorably than adjustments to annual incentive awards. Of note, ISS appears to be more open to special one-time awards than to adjustments of outstanding awards.
  • Pay outcomes should be “reasonable” (e.g., in magnitude and consistent with external factors and changes to the underlying business strategy) with justifications and rationale clearly disclosed.
  • Proxy statements should include detailed disclosure (not boilerplate or generic statements) of the rationale for pay decisions to help ISS and investors understand the impact of the pandemic on the company’s business and pay outcomes.

    Download the full article including the FAQs which covers salary and incentive award adjustments, one-time awards, board responsiveness to low say-on-pay votes, equity plan scorecard changes, and option repricings.  
Amy Knieriem
Amy Knieriem

Senior Principal, Senior Legal Consultant

Carol Silverman
Carol Silverman

Partner, Senior Legal Consultant

David Thieke
David Thieke

Senior Principal, Executive Compensation