• Briefly Noted
  • Proxy Recommendations Driving Equity Compensation

    Many corporations adjust their equity compensation plans to match the targets set by proxy adviser Institutional Shareholder Services (ISS), according to researchers who are affiliated with Harvard University and Stanford University. The study’s authors reached this conclusion after analyzing 4,230 company observations between 2004 and 2010. They found more than a third of proposed equity compensation plans were within 1% of the cap recommended by ISS.

    Institutional Shareholder Services and competitors (which include Glass, Lewis & Co.) make recommendations on proxy ballot proposals. These advisory firms enable institutional investors to avoid bearing the full cost (both on a monetary and a resource basis) of analyzing the proxy ballots for each company they hold shares in.

    ISS uses a proprietary metric called Shareholder Value Transfer (SVT) to determine if a company’s equity compensation plan is reasonable. These plans include stock options, restricted stock and performance-based share awards for executives and employees. The study’s authors say SVT measures the value of currently outstanding equity grants and the potential value of awards that could be made in the future under both current and proposed equity plans.

    The combination of Institutional Shareholder Services’ influence and the essential lack of discretion in its equity plan recommendations give corporations an incentive to stay within the limits of the SVT cap. ISS does not share their proxy ballot recommendations with corporations in advance of the proxy ballot being sent to shareholders. What ISS does do, however, is sell early access to the SVT cap information through its ISS Corporate Services subsidiary.

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    T Schaefer from CA posted over 2 years ago:

    How can an individual investor decide how to vote on the compensation plans presented on a firms' proxy ballots? I get dozens of these ballots each year, and evaluating them all seems a near impossible task (they all seem excessive to me, with few exceptions).

    I'd love to see AAII publish an article to give some guidance on this -- perhaps even coming up with some formulas that would enable AAII to put out their own advisory recommendations.

    Or, for that matter, is there perhaps already some credible advisory service that makes their recommendations available for free?

    Charles Rotblut from IL posted over 2 years ago:


    It is on my list of article ideas to do something about proxy ballots and proxy ballot advisers.


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