ISS Releases Peer Group FAQs

ISS Releases Peer Group FAQs and Provides Companies an Opportunity to Update Executive Compensation Peer Groups for 2012 Changes

December 7 2012

Recently we alerted our clients about changes to ISS’s peer group construction methodology for 2013.  This week, ISS released a set of FAQs detailing this methodology.

The new methodology incorporates information from companies’ self-selected pay benchmarking peer groups in order to identify GICS industry groups beyond the subject company’s own GICS classification.  Additionally, the methodology focuses on a company’s 8-digit GICS designation to identify peers that are more closely related in terms of industry.  When selecting peers, the methodology prioritizes peers that maintain the company near the median of the peer group, are in the subject company’s peer group, and have chosen the subject company as a peer.

Given the added complexity of this methodology, the large number of potential peers the methodology can produce and an increased level of “manual judgment” on ISS’s part, it will be very difficult to independently identify the ISS selected peer group.

According to ISS, the process of peer group construction and rationalization must begin well before companies’ new proxy disclosures are available.  As a result, ISS will typically use company-selected peers disclosed in the prior year’s proxy (i.e., for meetings in 2013, ISS will typically use peers disclosed in 2012) for their new methodology.  However, ISS is offering companies an opportunity to proactively provide information regarding changes to company self-selected peer groups.

If you have not made or do not intend to make changes to your previously disclosed peer group, or do not wish to provide this information in advance, no action is required.

Companies wishing to provide updated peer group information can fill out this form on ISS’s website.  Companies should note the following:

  • The peer group provided should be the peer group used for benchmarking CEO pay for FY2012.
  • The complete peer list should be provided.
  • While public disclosure of this information is not required at this time, the expectation is that peers provided by this form will be disclosed in the upcoming proxy. The ISS research team will use this information only for the purpose of constructing peer groups.
  • Following submission of the form, you will receive further instructions via e-mail regarding confirmation of the submitted list. You will be asked to provide an electronic copy of the submitted list on your company’s letterhead.
  • Feedback must be submitted by December 21, 2012 in order to ensure its consideration in ISS’s peer group construction for 2013.

LINKS
SH&P Client Alert: ISS and Glass Lewis 2013 Executive Compensation Policies
2013 ISS Policy Information
ISS U.S. 2013 Peer Group Methodology FAQs
ISS U.S. Company Peer Group Feedback