ISS Burn Rate Caps for 2013
ISS has released the 2013 allowable burn rate levels for its equity-based compensation plan analysis. ISS will recommend “against” equity proposals when the company’s three-year average burn rate exceeds the industry specific burn rate thresholds provided below. Additional information regarding ISS’s methodology for evaluating equity compensation plans in 2013 may be found in the recently released white paper Setting the Bar for Equity-Based Compensation.
For the Russell 3000, 2013 burn rate caps increased for 12 of the 22 industry groups by an average of 0.35%, with Real Estate (+0.91%) and Capital Goods (+0.77%), having the largest increases. Burn rate caps declined by an average of 0.67% for 8 of the Russell 3000 industry groups, with Consumer Services (-1.93%) and Telecommunications (-1.65%), declining the most. The 2013 burn rate cap did not change for 2 industry groups (Materials and Utilities).
Industry thresholds are calculated as the greater of 2% and an amount that is one standard deviation in excess of the industry mean with annual changes limited to 2%. Companies are divided into two segments, one for companies in the Russell 3000 index and another for companies outside the Russell 3000.
Companies that exceed the allowable burn rate thresholds can avoid a negative vote recommendation by committing (in a public filing) to maintain a burn rate over the next three fiscal years that is equal to or less than the industry mean plus one standard deviation as calculated by ISS at the time of the proposal.