Executive Compensation Tops ISS List for Investors and Issuers, Catherine Dunn Corporate Counsel 10-12-2012

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Executive Compensation Tops ISS List for Investors and Issuers

Catherine Dunn

Corporate Counsel

10-12-2012

On this, shareholders and corporate issuers can agree: executive compensation will continue to be the top priority for the next proxy season, according to a new survey by leading advisory firm Institutional Shareholder Services.

The results of ISS's annual policy survey [PDF] are based on responses from 97 institutional investors and 273 public companies. And just as a study we looked at recently compared how men and women directors think about corporate governance, the ISS poll highlights key areas where investors and companies agree and disagree.

When asked to rank their top three governance topics for their organizations in the coming year, both investors and issuers listed executive compensation as No. 1.

Investors ranked board competence/director qualifications as second, and board independence as their third top concern. Issuers cited risk oversight as second, and board competence/director qualifications as third.

The survey also delved into the thorny issue of peer benchmarking (a contentious debate we've also touched on recently). "While ISS's selection of peer groups for analysis of executive compensation invokes divergent view from investors and issuers, both agree that size matters when selecting peers," the report states.

To wit:

Eighty-four percent of investors and 74 percent of issuers indicated that an ISS-selected peer being within a specified size range of the target company (e.g., between 0.5 and 2 times the company's revenue) is a very or somewhat relevant factor in selecting peers for a pay-for-performance comparison group.

Another hot-button subject-disclosure of corporate political spending-also elicited very different views, with investors clamoring for more transparency than issuers find necessary:

Investors and issuers diverge on disclosure practices related to corporate lobbying. More than half of the investor respondents view greater disclosure of corporate lobbying policies, procedures, oversight mechanisms, and expenditures as beneficial, depending on the company's current level of transparency and of any significant related issues. In contrast, more than half of issuer respondents view greater disclosure in this topic as not beneficial, and lobbying as an issue best left to management's discretion.

When it comes to nominating new directors to board seats, "issuers value diversity in skillset and tack records at other boards," according to the survey. The vast majority of issuer respondents-84 percent-consider a nominee's diverse skill set to be "very important." Most investor respondents cited a nominee's track record at other boards as "very important."