Iss Aksjeopsjoner Ikke Prestasjonsbasert

Institusjonelle Aksjonærstjenester (ISS) har lagt inn et åtte siders hvitt papir med tittelen An Investor Guide til Stock Option Timing Scandal. Papiret gir en god oversikt over den siste muligheten for tilbakekalling og spring-loading avsløringer. Det har vært en rekke innlegg i blawgosfæren som debatterer lovligheten av backdating og spring-loading. Selv om disse praksiser ikke nødvendigvis er ulovlige, som det peker på: Optimalitetsskandalen. stiller spørsmålstegn ved tilsynet fra styremedlemmer og kompensasjonskomitémedlemmer ved disse selskapene. Investorer kan frykte at andre regnskapsmessige problemer eksisterer, men har ennå ikke kommet fram. Opplysning om backdating sender en 8216 signal som ledelsen er villig til å fudge tall til egen fordel, og de kan være villige til å spille andre regnskapstrykk.8217 ISS anbefaler følgende som beste praksis for opsjonsbidrag: Vedta 8220blackout8221 perioder for å utelukke aksjekvoter når selskap Ledere har materiell, ikke-offentlig informasjon i hånden. Vedta fastsatte tidsplaner for tilskudd som gir stipendier med jevne mellomrom (månedlig, kvartalsvis eller årlig), sammen med regler for etablering av opsjonsutøvelseskurser på slike stipendier. Avstå fra å gi stipend på disse faste datoene når ledere har markedsflytende nyheter. Oppgi begrunnelsen for tilskudd på en bestemt dato, og forklare hvorfor kompensasjonsutvalget valgte datoen over andre mulige datoer. Filformular 4 rapporterer om opsjonstildeling omgående med SEC. Selv om disse metodene sikkert ville gå langt for å eliminere backdating og spring-loading, som Geoff påpekte hovedsakelig på dag ett av skandalen (se her), kan opsjonstidspunktet være en effektiv form for kompensasjon. SEC-kommissær Atkins har nylig uttrykt en lignende oppfatning av vårbelastning i en tale før Internasjonalt eierstyringsnettverk (se her). Denne visningen har imidlertid ikke blitt spesielt godt mottatt (se for eksempel her), kanskje delvis av grunnene til at Tom diskuterer her. Det vil være interessant å se hvor mange selskaper som vedtar de tiltakene som ISS anbefaler. For selskaper som er involvert i skandalen, vil den tapt fleksibiliteten ved utformingen av en kompensasjonspakke sannsynligvis oppveies av den potensielle gjenopprettelsen av investorens tillit. For selskaper utenfor brannen, vil kanskje skandalen ganske enkelt resultere i et par linjer med tilleggsopplysninger i henhold til 8220. Kompensasjonsutvalget kan ved utøvelse av sin forretningsdømmelse fra tid til annen godkjenne tilskudd av opsjoner like før offentliggjøring av gunstige selskapsutviklinger.8221 Vurder dette: Del dette: Som dette: Postnavigasjon Bill 8212 162 (m) har blitt tolket på en måte som tilsvarer ytelsesbasert med en økning i aksjekursen. In-the-money alternativer blir ikke behandlet som resultatbasert fordi de ville ha verdi selv om aksjekursen gikk ned noe. Backdated alternativer er funksjonell ekvivalent av i pengene alternativene. Spring-loaded alternativer er i beste fall et nærmere tilfelle. Mind deg, I8217m forsvarer ikke måten skattekoden trekker en dum linje mellom i penger og penger. Det skal alle være fradragsberettigede. Og ja, bare selskaper med en positiv marginal skattesats vil bryr seg. Noen tech selskaper don8217t Jeg lurer på om dette bidrar til å forklare mønsteret av backdating. I8217m ikke klar over noen myndighet på vei-lastede alternativer. Hvorfor tror du det virker som en aggressiv holdning (det kan meget vel være, men siden du er skatteeksperten håpet du at du kunne utarbeide). Det ville også være fullt ut av den 35 straffen som vanligvis gjelder bare for selskaper som har tilstrekkelig skattepliktige Inntekt i bevilgningsåret for å dra nytte av fradrag Bill 8212 Bare som et sidemerkelapp, faller effektivitetsargumentet fra hverandre hvis du mister skattefradraget under 162 (m), og muligens går avoul på 409A. Er det autoritet der ute og sier at vårbelastede alternativer fremdeles er ytelsesbaserte med henblikk på 162 (m). Det virker som en aggressiv holdning. Jeg er helt enig i at det å være vanskelig å knytte en komp committee8217s hender virker som ineffektiv for selskaper som ikke har et investorproblemer. Men hvis skattekoden allerede har pålagt 35 straffe for penger og effektive alternativer, ser ISS-forslagene fornuftig ut. I8217m overrasket ISS didn8217t kunngjøre sin foretrukne posisjon at alle opsjoner blir tildelt til høy aksjekurs i bevilgningsåret. Jeg hørte at de vurderte å anbefale prising til den høye prisen i løpet av opptjeningsperioden, men trodde det ikke kunne gi de riktige incentivene.10202014: Tid for ISS å bestemme: Er aksjekursbevegelsen et mål for ytelse eller ikke (Towers Watson) Det er En intern inkonsekvens med ISSs posisjon på standard time-vesting aksjeopsjoner. Hvordan kan man fundamentalt skille mellom: 1 Aksjeopsjoner (ikke resultatbasert lønn i henhold til ISS), som leverer verdi basert utelukkende på aksjekursbevegelse og fortsatt service, og 2 Aksjebeløp knyttet til gjennomsnittlig total aksjonæravkastning (TSR) basert lønn i henhold til ISS), som også leverer verdi utelukkende basert på aksjekursbevegelse og fortsatt service. Faktisk kan man argumentere for at aksjeopsjoner er det mer ytelsesbaserte kjøretøyet, siden de ikke leverer kompensasjon med negativ aksjekursutvikling, noe som ofte ikke er sant for relative TSR-priser. Å si at ett kjøretøy er ytelsesbasert lønn og det andre ikke er inkonsekvent. Vennligst klikk her for å rapportere denne lenken hvis den er ødelagt (for eksempel hvis du ser en 404 fil ikke funnet feilmelding etter at du har klikket på linken over). Et viktig ord om forfatterskap: BenefitsLinkreg gir en hypertekstlenke til elementet som vises ovenfor, men er ikke forfatteren av elementet (med mindre annet er angitt). Webmaster: Aktiver Javascript på nettleseren din for å sende en e-post til webmaster. kopiere 2017 BenefitsLink, Inc. Personvernpolicy2013 Omfattende amerikanske kompensasjonspolitikk Ofte stilte spørsmål Oppdatert: 8. mars 2013 US Executive Pay Oversikt Hvor mange navngitte executive officers8217 totale kompensasjonsdata er vist i delen Executive Pay Overview Den executive compensation-delen vil generelt reflektere det samme Antall navngitt utøvende offiser8217s total kompensasjon som beskrevet i en firmas8217s proxy-erklæring. Men hvis seks eller flere navngitte utøvende offiserer8217 total kompensasjon er blitt avslørt, vil bare fem bli representert i seksjonen. Ordren vil være konsernsjef, andre, tredje, fjerde og femte høyeste betalte styremedlem etter total kompensasjon. Nåværende ledere velges først, etterfulgt av avslutte ledere. Ledere som blir avsluttet etter slutten av det siste regnskapsåret, vil bli inkludert, da de var ledere i det siste hele regnskapsåret. En konsernsjef i selskapet8217 har trukket seg og det er en ny administrerende direktør på plass. Hvilken administrerende direktør er vist i rapporten Vår rapport viser generelt administrerende direktør i kontor på siste dag i regnskapsåret. Hvordan beregnes Total CompensationTotal Compensation Base Lønn Bonus Ikke-aksjene incentiv Plan Kompensasjon Stock Awards Option Awards (basert på full tildeling dato verdier, beregnet av ISS) Endring i pensjonsverdi og ikke-kvalifisert utsatt kompensasjon inntekt alle andre kompensasjon. Beregningen vil generelt matche Sammendragskompensasjonstabellen med unntak av aksjeopsjonsverdien andor stock priser, beskrevet nærmere nedenfor. Stock Awards 8211 Grant dato verdi, generelt som rapportert i Grants of Plan-Based Awards Table for noen aksjeutdelinger, inkludert tidskrevende priser og ytelsesaksjer. Hvis aksjekursbeløpet er høyere i Sammendragskompensasjonen enn tilskuddsdagens virkelig verdi vist i Tildeling av Planbasert Tildelingstabell, vil ISS generelt ta høyere verdi i vår rapport. Hvis aksjeprisene som vises i Tildeling av Planbasert Tildelingstabell reflekterer nåværende i stedet for i fjor, vil ISS ikke inkludere verdien i vår rapport. I henhold til SEK-opplysningskrav skal tilskuddene til Plan-Based Award-verdier gjenspeile egenkapitalprisene i det siste regnskapsåret. Hvis tildelingsdatoverdien ikke er rapportert, beregnes antall målenhetsandelene multiplisert med sluttkursen på tildelingsdagen. Verdien av aksjekursene bør generelt være i samsvar med både Sammendragskompensasjonstabellen og Grunnlaget for Planbasert Tildelingstabell. Alternativpriser 8211 Grant dato nåverdien av opsjoner ved hjelp av Black-Scholes Options Pricing Model, som beregnet av ISS (se 5). Hvilke innganger brukes i ISS8217 Black-Scholes-metodikk Hvordan er nåverdien av alle akkumulerte pensjoner beregnet i administrerende direktør Tally Sheet-tabellen Dette tallet representerer beløpene som er oppgitt som nåverdien av fordelene for alle pensjonsordninger (inkludert kvalifisert og ikke-kvalifisert) , som beskrevet i pensjonsfordelstabellen i proxy-setningen. Hvordan beregnes verdien av ikke-kvalifisert utsatt kompensasjon i administrerende direktør Tally Sheet-tabellen Dette tallet representerer summering av alle utsatte kompensasjonsverdier, fra både kvalifiserte og ikke-kvalifiserte planer, som beskrevet i tabellen Ikke kvalifisert utsatt kompensasjon. Hvordan beregnes potensielle oppsigelsesbetalinger i administrerende direktør Tally Sheet-tabellen Verdiene for ufrivillig oppsigelse uten årsak og endring i kontrollrelatert avslutning er gitt som angitt under det relevante termineringsscenariet i Change in Control Table og ordet av proxy-setningen Financial Data Total Aksjeeiers avkastning og inntekter Hvor får ISS en selskapets 8217s 1-årig finansiell total aksjonæravkastning, 3-årig finansiell total aksjonær avkastning og inntekter ISS mottar alle økonomiske data i kompensasjonsprofilen fra Standard Amp Poor8217s Research Insight. Hvordan beregner Research Insight 1-årig finansiell Total Aksjonær Return (TSR) Den årlige totale aksjonæravkastningen er den årlige avkastningen som reflekterer prisøkning pluss utbytte (basert på reinvestering ved utgangen av måneden av utbyttet) og den sammensatte effekten av utbytte betalt på reinvestert utbytte over en ettårsperiode. Hvordan beregner Research Insight 3-årig finansiell total aksjonæravkastning (TSR) Den treårige totale aksjonæravkastningen er årlig avkastning som reflekterer prisvekst samt reinvestering av utbytte (som beskrevet ovenfor) og sammensatt effekt av utbytte betalt på reinvestert utbytte over en treårsperiode. Hvordan beregner Research Insight selskapets inntekter? Resten er brutto salget (mengden faktiske faktureringer til kunder for vanlig salg gjennomført i løpet av perioden) redusert med kontantrabatter, handelsrabatter og returnerte salg og godtgjørelser for hvilke kreditt er gitt til kunder. Hvordan beregner Research Insight selskapets nettoinntekt (tap) Netto inntekt eller tap rapporteres av et selskap etter at kostnader og tap er trukket fra alle inntekter og gevinster for skatteperioden, inkludert ekstraordinære poster og avviklet virksomhet. Hvorfor betaler konsernsjefen som prosent av selskapets 8217-inntekter som viser NA (ikke aktuelt) Hvis en selskapsomsetning på 82% er null, vil konsernsjef betale som prosent av selskapets 8217-inntekter, være NA. Hvorfor betaler konsernsjefen som prosent av selskapets nettoinntekter som viser NAIf et selskap8217s nettoinntekter er null eller negativt, administrerende direktør betaler som prosent av selskapets nettoinntekt vil være NA. Management Say on Pay (MSOP) Evaluering Hva er ISS8217 Executive Compensation Evalueringspolicy Utviklingsutligningsvurderingspolitikken består av tre seksjoner: Betal for ytelse, problematisk betalingspraksis og styreteknikk og responsivitet. Anbefalinger utstedt i henhold til Executive Compensation Evaluation-politikken kan gjelde for noen av eller alle følgende stemmesedler, avhengig av betalingsproblemet (som beskrevet i politikken): Valg av styremedlemmer (primært kompensasjonsutvalgets medlemmer), Advisory Votes on Compensation (MSOP) , andor Equity Plan forslag. Hvis et selskap har en MSOP-beslutning ved stemmeseddelen, vil ISS også søke kompensasjonsrelaterte anbefalinger til medlemmer av kompensasjonsutvalget som er opptatt av valg. Generelt, hvis et selskap har en MSOP-beslutning på stemmeseddelen, vil eventuelle kompensasjonsrelaterte anbefalinger bli Anvendt på dette forslaget, men hvis et selskap tidligere har mottatt en negativ anbefaling om en MSOP-oppløsning relatert til et problem som fortsatt er i gang, kan ISS også anbefale INHOLDAGAINST stemmer med hensyn til kompensasjonsutvalgets medlemmer. Dersom en eller flere styremedlemmer mottok en negativ anbefaling i det foregående året på grunn av ISS8217, vil bekymringer over kompensasjonspraksis ha betydning for følgende år8217s anbefaling. Dersom en eller flere styremedlemmer mottok mindre enn 50 prosent av aksjonærstøtten (uansett om det er kompensasjonsproblem ), Kan ISS anbefale at aksjonærer trekker seg fra hele styret med unntak av nye nominere dersom selskapet ikke foretar tilstrekkelige tiltak for å svare eller rette opp de problemene som ble reist i forrige rapport. Hvis en eller flere styremedlemmer mottok et høyt nivå av uenighet (30 prosent til 49,5 prosent), bør selskapet diskutere eventuelle tiltak eller hensyn tatt for å ta opp bekymringen. Et høyt nivå av uenighet indikerer en generell misnøye, og styret bør være lydhør overfor aksjonærene. Manglende diskusjon eller vurdering, kombinert med eksisterende borderline bekymringer, kan ha betydning for følgende år8217s anbefaling Betal for ytelsesvurdering Vennligst se ISS8217 8220Evaluering Betal for ytelsesjustering 8221 hvitt papir for en forklaring av den kvantitative metoden som ble brukt i første fase av Denne analysen og sammendraget av de kvalitative faktorene som vurderes. Hvordan påvirker innledende kvantitativ lønn for resultatanalyse den ultimate stemmeanbefaling for Management Say on Pay-forslag eller valg av kompensasjonskomitémedlemmer (i fravær av ledelse sier på betalingsforslag) Kvantitativ lønn for resultatanalyse tjener som en startskjerm av company8217s betaler for prestasjonsjustering. En høy eller medium bekymring fra den kvantitative skjermen resulterer i en grundig kvalitativ gjennomgang av selskapets kompensasjonsdiskusjon amp analyse for å identifisere de sannsynlige årsakene til feiljustering og eller reduserende faktorer. Etter den kvalitative gjennomgangen av selskapets overtakelseserklæring fra selskap 8217, var det bare 53 av de høye bekymringsselskapene som resulterte i negative stemmeranbefalinger i proxy-sesongen 2012, mens 47 av de høye bekymringsselskapene mottok en gunstig stemmeanbefaling på grunn av reduserende faktorer identifisert i den kvalitative vurderingen . Hva er de faktorene som ISS anser for å gjennomføre den kvalitative revisjonen av lønn for resultatanalyse. Her er nøkkelfaktorer som ISS anser for å gjennomføre den kvalitative revisjonen av lønn for resultatanalyse: Forholdet mellom ytelses - og tidsbaserte egenkapitalpriser Samlet forhold mellom ytelse - basert kompensasjon Fullstendigheten av offentliggjøring og strenghet i resultatmål Selskapets benchmarkingprosess (f. eks. om det inkluderer tilstedeværelse av eksternt jevnaldrende eller over-median benchmarking) Faktiske resultater av finansielle operasjonelle beregninger, som vekst i inntekter, fortjeneste, kontantstrøm , etc. både absolutt og relativt til jevnaldrende Spesielle forhold knyttet til for eksempel en ny administrerende direktør i det foregående regnskapsåret eller uregelmessig egenkapitalstøttepraksis Realiserbar lønn i forhold til stipendlønn og Eventuelle andre faktorer som anses relevant. Relevante faktorer vil bli diskutert i rapporten. Hvis et selskap mottok en 8220low8221 bekymring i kvantitativ lønn for ytelsesmodell, vil ISS fortsatt evaluere selskapets 8217s insentivprogrammerISS vurderinger alle selskaper8217 Kompensasjonsdiskusjon og analyse og fremhever bemerkelsesverdige problemer til investorer uavhengig av kvantitative bekymringsnivå. Den kvalitative evalueringen er den viktigste delen av analysen. Problematiske insentivdesigner som flerårig garanterte betalinger, skjønnsmessige lønnskomponenter eller mangel på strenge mål er generelt adressert i den kvalitative analysen og kan resultere i en negativ anbefaling til tross for en kvantitativ bekymring 8220low8221. Hvordan bruker ISS realiserbar lønn i analysen8282 Standardforskningsrapport vil vise treårig realiserbar lønn sammenlignet med den treårige bevilgte lønn for SampP 500-selskaper som begynner med 1. februar 2013 møte datoer. Se spørsmål 7 nedenfor for ISS8217-definisjon av realiserbar lønn og hvordan den vil bli beregnet. Realiserbar lønn vil generelt bli diskutert i tilfeller der selskapet8217s første kvantitative skjerm viser en høy eller medium bekymring. For SampP 500-selskaper kan vi benytte det realiserbare lønnskjemaet for å se om realiserbar lønn er høyere eller lavere enn gitt lønn, og videre undersøke de underliggende årsakene. For eksempel er realiserbar lønn lavere enn tildelt lønn på grunn av manglende måloppnåelse i ytelsesbaserte priser, eller rett og slett på grunn av nedgang i aksjekursen. Er realiserbar lønn høyere enn tildelt lønn på grunn av over målutbetalinger i ytelsesbaserte egenkapitalpriser og, I så fall er de underliggende målene tilstrekkelig strenge, eller er forskjellen på grunn av økende aksjekurs. For alle selskaper skal ISS8217 vurdere realisert andor-realiserbar lønn for å avgjøre om selskapet demonstrerer et sterkt engasjement for en pay-to-performance filosofi . Det faktum at realiseringslønnen er lavere eller høyere enn tilskuddsbeløpet, vil ikke nødvendigvis hindre andre sterke indikasjoner på at selskapets kompensasjonsprogrammer ikke er tilstrekkelig knyttet til ytelse som er utformet for å øke aksjonærverdien over tid. I mangel av slike indikasjoner vil imidlertid realiserbar lønn som viser en løpende forpliktelse være en positiv vurdering. Hvordan er Realisable Betal for store selskaper med stor kapasitet calculated8280 Målet er å beregne et estimert beløp på 8220realiserbare pay8221 for konsernsjefene i SampP 500-selskapene. Det vil inkludere beløpene som faktisk er betalt eller realisert, eller den nåværende verdien av tilskuddstilskudd som er gjort, i løpet av en bestemt måleperiode, ved slutten av denne målingsperioden. Realiserbar lønn vil inkludere alle ikke-incitament kompensasjonsbeløp betalt over måleperioden, pluss verdien av egenkapital eller langsiktige kontantinnskudd utbetalt i løpet av perioden og enten opptjent eller, hvis prisen fortsatt er pågående, revaluert til målnivå som på slutten av målingsperioden. Den totale realisasjonsverdien for disse tilskuddene og utbetalingene vil således være summen av følgende: Basalønn rapportert for alle år i måleperioden Bonus rapportert for alle år Kortsiktige (typisk årlige) utmerkelser rapportert som ikke-egenkapitalpengerettskompensasjon for alle år For alle prospektive langsiktige kontantutdelinger i løpet av målingsperioden, er verdien av prisen (hvis opptjent i samme målperiode) eller målverdien i tilfelle pågående prissykluser For alle aksjebaserte priser foretatt i løpet av måleperioden, er verdien (basert på aksjekurs ved utgangen av målingsperioden) av utmerkelser som er foretatt i perioden (minus aksjer som fortabes på grunn av manglende oppfyllelse av ytelseskriterier) eller, hvis priser fortsatt er pågående, Målnivået for slike utdelinger For aksjeopsjoner gitt i målingsperioden, ble nettoverdi realisert med hensyn til slike tildelte opsjoner som også ble utøvet i perioden for opsjoner tildelt, men ikke tidligere utstedt i løpet av måleperioden, vil ISS beregne opsjonsverdi ved hjelp av Black-Scholes opsjonsprisemodell ved utgangen av måleperioden Endring i pensjonsverdi og ikke-kvalifisert utsatt kompensasjonsinntekt rapportert for alle år og alle andre kompensasjoner rapportert for alle år. Vanligvis tre regnskapsår, basert på selskapets 8217s regnskapsår. For realiserbar lønn beregnet som en del av ISS8217 2013-analyser, vil dette generelt bestå av regnskapsår 2010 til 2012. Merk at ISS8217 realiserbart beløp vil være basert på en konsekvent tilnærming, ved bruk av informasjon fra selskapets fullmektige opplysninger. Siden nåværende SEC-opplysningsregler er utformet for å oppregne 8220grant-date8221-lønn snarere enn realiserbar lønn, vil disse estimatene være basert på ISS8217 best mulig innsats for å bestemme nødvendige innganger i beregningen. I tilfeller hvor det for eksempel ikke er tilstrekkelig klart om en gjeldende pris har blitt opptjent eller fortapt i en målperiode, vil ISS bruke det tildelte målprisnivået. Hvorfor bruker ISS ikke egenverdien (utøvelseskurs minus nåværende markedspris) av aksjeopsjoner ved beregning av realiserbare payTop executives8217 opsjoner utløper typisk etter sju til ti år, noe som betyr at selv om et opsjon er undervanns i de første årene etter tilskuddene, Det er en betydelig sannsynlighet at det til slutt vil gi noen verdi til innehaveren før utløpet. Aksjeeiere innser at ved å vurdere 8220realizable8221 betale som lønnsomhet, er det viktig å inkludere den økonomiske verdien av undervannsalternativer (som også vil gjenspeile effekten av en lavere aksjekurs, hvis det er aktuelt). Et selskap vil gjerne offentliggjøre pågående og / eller fullførte prestasjonsbaserte aksjepriser for utmerkelser gjort de siste tre årene. Hvilken type formidlingsformat vil ISS foreslå? Avsløring av løpende eller gjennomførte prestasjonsbaserte aksjeutdelinger på en konsistent måte vil lette ISS8217 beregning av realiserbar lønn (som er basert på en best mulig utvinning av nødvendig informasjon fra proxy-setninger). Hvis et selskap har tildelt prestasjonsbaserte aksjeutdelinger i løpet av de siste tre årene, vil opplysningen av priser i følgende tabell være nyttig: Ikke bestemt ennå Resultatperiode inkluderer ikke tidsbesparende krav. Med hensyn til lønnsomhetsjustering og realiserbare lønnsberegninger, hvordan skal ISS behandle administrerende direktører som ikke har vært i stillingen i tre år. Den kvantitative metoden vil analysere total administrerende direktør for hvert år i analysen uten hensyn til om alle år er samme eller forskjellige administrerende direktører. Hvis den analysen indikerer betydelig lønn for ytelsesvikt, kan den følgende kvalitative analysen ta hensyn til eventuelle relevante faktorer knyttet til en endring i konsernsjef i perioden. Imidlertid, gitt en tilsynelatende koble fra ytelse og administrerende direktør, ville aksjonærene forvente at den nye administrerende direktørpakken skal være vesentlig ytelsesbasert. I flere år når et selskap har mer enn en konsernsjef, vil vi bare bruke en konsernsjef til å betale: Konsernsjef som var i posisjon ved utgangen av regnskapsåret, vil generelt være den som betaler lønnen. Basalønnen for konsernsjefen blir årlig. På samme måte, med hensyn til realiserbar lønn, vil ISS beregne det realiserbare beløpet ved utgangen av måleperioden av kompensasjonskompensasjonstabellen som er rapportert for konsernsjefen i kontoret på den siste dagen i hvert regnskapsår i måleperioden. Hvordan beregnes det årlige og treårige aksjonærenes avkastning (TSR) Hvordan vurderes 8220peaks og daler8221 i femårsanalysen? Under den relative vurderingen representerer de en - og treårige TSRer årlig avkastning som reflekterer aksjekursen verdsettelse over perioden, pluss virkningen av reinvestering av utbytte (og sammensatt effekt av utbytte betalt på reinvestert utbytte). Under den absolutte vurderingen representerer indeksert TSR verdien av en hypotetisk 100 investering i selskapet, forutsatt reinvestering av utbytte. Investeringen starter på dagen fem år før månedsslutningen nærmest selskapets siste regnskapsår, og måles på de påfølgende fem jubileumene på den aktuelle datoen. PTA-målsettingen (som beskrevet i ISS Evaluating Pay for Performance Adjustment White Paper) er utformet for å ta hensyn til muligheten for 8220bumps8221 i den generelle trenden. Følgende tabell illustrerer hvordan indeksert TSR vil bli beregnet for et selskap med et regnskapsår som slutter 2. oktober 2011, og hvordan indeksert TSR angår årlig total aksjonæravkastning: Hvilken TSR-tidsperiode vil ISS brukes til fagforetaket og de jevnaldrende Betal for ytelsesanalyse Hva med kompensasjonsperiodenTSR for fagforetaket og alle sine jevnaldrende er målt fra den siste dagen i måneden nærmest emnet company8217s regnskapsår. Hvis for eksempel selskapets 8282 års regnskapsår er 31. desember, vil de ettårige og treårige TSRene for fagforetaket og dets jevnaldrende være basert på 31. desember. Kompensasjonstall for alle selskaper er fra den senest tilgjengelige dato . For selskaper med møter tidlig på året, hvis lønnsoppgave for 2011 ikke er utgitt, hvilke betalingsdata bruker ISS useISS de nyeste kompensasjonsdataene for peer-selskapene, som kan være fra året før. Inkluderer du emnefirmaet i avledningen av peer-gruppen median Når du sier 14 selskaper minimum for jevnaldrende, inkluderer 14 det emnefirmaet Nei, verken administrerende direktør eller TSR for emnefirmaet er inkludert i medianberegningen. Fagforetaket inngår heller ikke i antall peer-selskaper, som generelt vil være minimum 14. Hvilke konsekvenser kan en negativ inntektsgivende anbefaling ha på egenkapitalplaner forslag Hvis en betydelig del av konsernsjefens feiljusterte lønn tilskrives ytelsesbaserte aksjeutdelinger, og det er en egenkapitalplan ved stemmeseddelen med konsernsjefen som en av deltakerne, kan ISS anbefale stemme imot egenkapitalplanen. Betraktninger ved å anbefale mot egenkapitalplanen kan inkludere, men er ikke begrenset til: Størrelsen på lønnsviktstilpasning Bidrag fra ikke-ytelsesbaserte egenkapitalbevilgninger til total lønn og Andelen aksjeutdelinger gitt i de tre siste regnskapsårene, konsentrert til den utnevnte ledelsen offisernivå. Et konsentrasjonsforhold for topp 5 som overstiger 25 vil berettige ytterligere granskning. Vi ville se på både konsernsjef og topp 5 konsentrasjonsforhold. Hvis konsernsjef har mindre enn 20, men topp fem har 50 på grunn av en ny leieforhold, er det usannsynlig at vi vil anbefale mot egenkapitalplan. Vi vil også se på de tre siste årene med konsentrasjonsforhold med og uten konsernsjef. Er konsentrasjonen høy på grunn av administrerende direktør eller er det morløs likestilling blant nøkkeleksempler Er LTI-programmet likt for konsernsjef og topp 5 Er det resultategenskaper for aksjeutdelingene, og er det det samme for alle topp fem? Er ytelsen mål som er tilstrekkelig strenge Hvis et selskap ikke har blitt omsettet for handel i fem regnskapsår, gjelder den kvantitative ytelsesevalueringsevalueringen fortsatt Hva om selskapet ikke har blitt omsettet for tre regnskapsår Skulle et slikt selskap bli brukt som et selskap for andre selskaper Dersom selskapet ikke har vært handlet i fem regnskapsår, vil den relative vurderingen, spesielt det relative årlige og treårige TSR-lønnings - og ytelsesranger og flere av lønn mot medmennesker, fortsatt gjelde. Hvis selskapet ikke har blitt solgt i tre regnskapsår, vil ettårs lønn og ytelsesrangeringen og flere av lønn mot medarbeider fortsatt gjelde dersom selskapet har vært offentlig minst ett år. I begge tilfeller vil selskapets begrensede levetid som et børsnotert selskap betraktes som en del av en kvalitativ evaluering. Vanligvis vil bare selskaper med tre fulle års data være peer-selskaper. I begrensede tilfeller kan et selskap med mindre enn 3 års data brukes når den kvantitative evalueringen fokuserer på bare ett år. Vil lønn fortsette å bli definert som sammendragetablettlønn eller vurdere dagens verdi av LTI (potensiell realiserbar lønn) Total kompensasjon beregnet av ISS vil fortsatt bli definert som gitt lønns - og lønningsmuligheter av flere grunner, men inkluderer det: 1 ) Det er den beste refleksjonen av kompensasjonskomiteen 8217s tilsyn og beslutningsprosesser, og 2) lønnsmuligheter bør være reflekterende overfor selskapets tidligere ytelse til en viss grad, spesielt hvis muligheten ser ut til å være feiljustert med den ytelsen (på en negativ måte ), forventer aksjonærene at de gir muligheter til å være sterkt ytelsesbasert. Realisert eller potensielt realiserbar lønn vil bli vurdert som en del av ISS8217 kvalitativ evaluering av lønnsomhetstilpasning. Med diskonteringsrenten på sitt laveste, har den beregnede verdien av pensjonsytelsene økt. Vil ISS ta hensyn til dette i vurderingen av administrerende direktør? Fordi ISS8217 kvantitativ analyse har en langsiktig orientering, forventes ikke avviksforventninger å påvirke resultatene betydelig. Imidlertid kan slike uregelmessigheter vurderes i den kvalitative evalueringen som gjennomføres før en negativ anbefaling vil bli utstedt. ISS har anbefalt avhold på kompanys kompensasjonskomité eller anbefalt mot selskapets ledelse si om lønn eller egenkapitalplan forslag på grunnlag av en administrerende direktør betale for ytelse frakobling. Hvilke tiltak kan selskapet ta for å ta hensyn til bekymringene? Betalingen for ytelsesvurdering er en case-by-case analyse, og handlinger bør skreddersys i henhold til de underliggende problemene som er identifisert i betalingen for ytelsesavbrudd. Utsikt over forventede tiltak for å øke andelen ytelsesbasert lønn i fremtiden vil ikke tilstrekkelig angi bekymringer om justering av nylige utmerkelser for å styrke ytelsenes tilknytning kan imidlertid vurderes. For eksempel, hvis den primære lønnsøkningskilden skyldes tidsbestemte egenkapitalpriser, kan det være en løsning for selskapet å gjøre en betydelig del av slike aksjeutdelinger til utnevnte lederoffiseres prestasjonsbaserte. En betydelig del av ytelsesbaserte priser vil være minst 50 prosent av aksjene tildelt hver av de utnevnte lederne. Vær oppmerksom på at dette er 50 prosent av aksjene tildelt i stedet for 50 prosent av verdien av prisen. Prestasjonsbaserte egenkapitalpriser er opptjent eller utbetalt basert på oppnåelsen av forhåndsdefinerte, målbare resultatmål. Selskapet bør gi opplysninger om resultatkriteriene (for eksempel avkastning på egenkapitalen) og forhindringshastighetene (for eksempel 15 prosent) knyttet til ytelsesbelønningene på tidspunktet de er laget. Fra denne opplysningen vil aksjonærer kjenne minimumsnivået for ytelse som kreves for eventuelle egenkapitalstipendier som skal opptjent. I denne sammenheng inneholder sterkt resultatbaserte aksjeutdelinger ikke standard tidsbaserte aksjeopsjoner eller ytelsesakselerert tilskudd. I stedet er ytelsesbaserte egenkapitalpræmier ytelsesbaserte tilskudd, hvor den enkelte ikke vil motta egenkapitalbevilgningen dersom målresultat ikke oppnås. Premium-priced options with an exercise price at least 25 percent higher than the fair market stock price on the date of grant may be considered performance-based. The 25 percent premium should serve as a guideline rather than a bright line test. A 25 percent premium may not be rigorous for a company trading at 1.00. If option vesting is contingent on the stock reaching a specified price, the price condition should be maintained for at least 30 consecutive trading days before vesting. In order for shareholders to assess the rigor of the performance-based bonus and equity programs, the company needs to disclose the performance measures and goals. Complete and transparent disclosure is critical. The company needs to disclose the following: the measures(s) used (and rationale for the selections) the goal(s) that were set for each metric and the target (and, if relevant, threshold and maximum) payout level(s) set for each NEO the reason that each goal was determined to be appropriate for incentive pay purposes (including the expected difficulty of attaining each goal) the actual results achieved with respect to each goal and the resulting award (or award portion) paid to the NEO with respect to each goal. The pay-for-performance action must be made in a public filing, such as a Form 8-K or DEFA 14A. Based on the additional disclosure of a renewed commitment, ISS may recommend a vote FOR the compensation committee members up for annual election andor vote FOR the management say on pay or equity plan proposal, if there is one on the ballot. However, ISS is not likely to recommend a vote FOR the compensation committee members andor vote FOR the management say on pay or equity plan proposal if ISS believes the company has not provided compelling and sufficient evidence of action to strengthen the performance-linkage to its executives8217 compensation and transparent additional disclosure. A company makes equity grants near the beginning of each year based on an evaluation of the company andor the executives performance in the immediately preceding year. Such grant information will appear in the following years proxy statement. Will ISS take into account the timing of these early equity grants made in the current fiscal year and make adjustments to the top executives total compensation when conducting its pay-for-performance evaluationSuch timing issues can be problematic for investors evaluating the relationship between performance and pay. The value of equity grants generally represents a significant proportion of top executives pay if the grants are made subsequent to the performance year, disclosures in the Grants of Plan-Based Awards Table may distort the pay-for-performance link. Some investors believe that equity awards can incentivize and retain executives for past and future performance therefore, adjustments for such timing issues may not be relevant. In addition, ISS8217 pay-for-performance analysis has a long-term orientation, where these types of timing issues are less relevant than an evaluation of one year8217s pay. Nevertheless, ISS may consider the timing of equity awards made early in a fiscal year in its qualitative assessment if complete disclosure and discussion is made in the proxy statement. In order to ensure that pay-for-performance alignment is perceived, the company should discuss the specific pre-established performance measures and goals that resulted in equity awards made early in the next fiscal year. A general reference to last years performance is not considered sufficient and meaningful to shareholders. If the company makes equity grants early in each year, based on the prior years specific performance achievement, shareholders should not be required to search for the information in Form 4s and compute the adjusted total compensation for the top executives in order to make a year-over-year comparison. Instead, companies should provide information about grants made in relation to the most recently completed fiscal year in the proxy statement for the shareholder meeting that follows that fiscal year (aligned with other compensation reported for that year). Many companies provide an alternate summary compensation table that takes into account the recent equity awards made in the current fiscal year. The number of options or stock awards with the relevant exercise price or grant price should be disclosed in the proxy statement. The term of the options should be provided as well. In order for ISS to compute the adjusted total compensation and include it for purposes of our narrative discussion and analysis, companies need to make transparent and complete disclosure in the proxy statement ISS will not search for the companies Form 4 filings to make such adjustments but will rely on the specific grant disclosures found in the proxy statement. With respect to pay-for-performance alignment, how does ISS treat CEOs who have not been in the position for three yearsISS8217 quantitative methodology analyzes total CEO pay for each year in the analysis without regard to whether all years represent the same or different CEOs. If that analysis indicates significant pay for performance misalignment, the ensuing qualitative analysis may take into account any relevant factors related to a change in CEO during the period. However, given an apparent disconnect between performance and CEO pay, shareholders would expect the new CEO8217s pay package to be substantially performance-based. For years when a company has more than one CEO, we will use only one CEOs pay: the CEO who was in the position at the end of the fiscal year will generally be the one whose pay will be used. The base salary for a recruited CEO will be annualized. A company awards time-based stock awards after meeting specific performance criteria. Does ISS consider such awards to be performance contingent compensationPerformance measures and goals need to be pre-established and disclosed in the proxy statement for ISS to consider such awards as performance contingent compensation. How does ISS capture transition period compensationDisclosure of transition period compensation varies across companies. Therefore, ISS does not apply a standardized methodology in all cases. Transition periods generally represent an extension of a recently completed fiscal year (until the start of a new fiscal year period). ISS will generally include transition period pay as part of the most recently completed fiscal year pay. Cash pay components such as base salary and bonus will be annualized and equity pay components will be added, subject to a company-specific case by case review. Determining Peer Companies How does ISS select constituents for the peer groups used in its Pay-for-Performance analysis As of 2013, ISS8217 methodology for selecting peers maintains its focus on identifying companies that are reasonably similar to the subject company in terms of industry profile, size, and market capitalization, taking into account a company8217s self-selected peers to guide industry selections. ISS8217 selected peer group generally contains a minimum of 14 and maximum of 24 companies based on the following factors: following: the GICS industry classification of the target company the GICS industry classifications of the company8217s disclosed benchmarking peers size constraints for both revenue (or assets for certain financial companies) and market value. Subject to the size constraints, and while choosing companies that push the subject company8217s size closer to the median of the peer group, peers are selected from a potential peer universe in the following order: the measures(s) used (and rationale for the selections) from the subject8217s own 8-digit GICS group from the subject8217s peers8217 8-digit GICS groups from the subject8217s 6-digit GICS group from the subject8217s peers8217 6-digit GICS groups from the subject8217s 4-digit GICS group When choosing peers, priority is given to potential peers within the subject8217s 8220first-degree8221 peer group (the companies that are either in the subject8217s own peer group, or that have chosen the subject as a peer), and companies with numerous connections (by choosing as peer or being chosen as a peer) to these first-degree peers. All other considerations being equal, peers closer in size are preferred. What are some ways that the peer groups constructed via ISS methodology implemented for 2013 differ from ISS8217 previous peer groupsThe following table outlines some of the characteristics of the projected 2013 peer groups (based on most recent disclosure as of September 2012) relative to prior peer groups: New Methodology (as of 2013) While ISS may choose peers that fall outside a subject company8217s market cap bucket if necessary to reach a minimum peer group size, none may have a market cap of less than 0.25 times the low end or more than 4 times the high end of the subject8217s market capitalization bucket. Which industry groups will be use assets for size comparisons What happens when a company has potential peers in both asset-based and revenue-based industry groupsISS will use balance sheet assets (rather than revenue) to measure the size of companies in the following 8-digit GICS groups to disclose the performance measures and goals. Complete and transparent disclosure is critical. The company needs to disclose the following: 40101010 Commercial Banks 40101015 Regional Banks 40102010 Thrifts mortgage 40202010 Consumer Finance 40201020 Other diversified Both subject and potential peer must be in the asset-based GICS groups listed above in order to be compared on the basis of assets. In cases where a subject company is in one of the asset-based GICS groups and a potential peer is not, revenues will be used for size comparisons. This principle applies to the size comparisons made to qualify a peer for potential inclusion as a peer, to the size rankings made to maintain the subject company near the median size of the peer group, and to the size prioritization of peers When will a company8217s peer group have more than 14 membersIn general, the closer the industry match, the larger the subject size of the peer group: for direct matches to the company8217s own 8-digit GICS, as many as 24 peers may be chosen. For matches of the company8217s peers8217 8-digit GICS, as many as 18 peers may be chosen, falling to a maximum of 14 peers when choosing from the company8217s 4-digit GICS. More peers, however, may be selected in order to bring the target company8217s size closer to the median of its peers. If the standard methodology fails to yield the minimum number of acceptable peers, what peer group will be usedHow will ISS create peer groups for very large 8220super-mega8221 companies for 2013In general, ISS will supplement the peer group generated by the standard methodology in such cases. For larger 8220super-megacap8221 companies, ISS will use the standard methodology to identify as many peers as possible for these very large companies. In cases where this does not provide a sufficient number of peers, ISS will supplement these peer groups according to the principles above. In exceptional cases, the ISS peer group may contain a minimum of 12 constituents. How does ISS treat foreign-domiciled or privately-held company peersISS uses these peers for the purpose of identifying relevant GICS industry groups, if relevant industry data is readily available. Foreign-domiciled companies that file Def14A, 10-Qs, and 10-Ks may be included as ISS selected peers. Privately-held or other foreign-domiciled companies that do not make such filings are not included as ISS selected peers. If a company used multiple peer benchmarking groups, which group will ISS use as an input to the process What does ISS do if a company does not employ a peer group for benchmarkingAISS uses the company peergroup that is used for CEO pay benchmarking purposes. If there is no peer group employed, the peer methodology will draw peers from the company8217s own 8-, 6- and 4-digit GICS groups, subject to ISS8217 size constraints. Does ISS apply additional judgment in the process of building peer groupsISS may adjust any peer groups that appear to have inappropriate constituents at the time of our analysis. The basic principles of the methodology will still apply: peers should come from similar industries and be of similar size, and company peers should be prioritized where possible. What impact will peer group methodology changes have on the pay-for-performance quantitative screen ISS8217 preliminary back-testing indicates that more than 80 percent of companies would experience a change of less than 15 points (up or down) in their Relative Degree of Alignment (RDA) measure under the new methodology, compared to the current peer methodology. Similarly, 80 percent of companies would experience a change of less than 0.2 in their Multiple of Median (MOM) measures under the new methodology. Accordingly, for the overwhelming majority (gt95) of companies, the quantitative screen concern levels would not be affected by the new peer groups. In addition, the overall distribution of these RDA and MOM measures under the new methodology does not deviate significantly from the current distribution of these scores. When will ISS reconstruct peer groupsCompany peer groups will be reconstructed during July and August, after the Russell 3000 index is updated in July. Expectation is that any revisions to company peer groups, which are not anticipated to be significant, will be in place for research in process as of September 1 (generally affecting companies that have filed DEF14As after mid August). A subsequent peer group construction will occur in December and early January, effective for meetings as of February 1. In December 2012, ISS provided companies an opportunity to communicate any changes made to their benchmarking peer groups following their 2012 proxy disclosures. Will companies with later fiscal year-ends that did not know at that time what changes they were making to peer groups used with respect to fiscal 2012 compensation decisions also have an opportunity to communicate changesYes, ISS will provide asimilar opportunity after proxy season, prior to reconstruction of its peer groups per above, for companies with later meetings. Can only Russell 3000 companies be used as peer companies Will ISS use companies that an issuer considers as peers (specified in the proxy) to develop the ISS comparator groupIf a Russell company discloses the names of the companies that it uses as its peers, and these companies are public, ISS will collect the data on them even if they are not in the Russell 3000. If these companies fit ISS criteria for peers, then they may be used as ISS peers as of the next update of ISS peer groups. What are GICS codes Who can I contact if I disagree with the GICS classificationThe Global Industry Classification Standard (GICS) was developed by Standard amp Poor8217s and MSCI in response to the financial community8217s need for a reliable, complete (global) standard industry classification system. GICS codes correspond to various business or industrial activities, such as Oil amp Gas Drilling or Wireless Telecommunication Services. GICS is based upon a classification of economic sectors, which is further subdivided into a hierarchy of industry groups, industries and sub-industries. The GICS methodology is widely accepted as the industry analysis framework for investment research, portfolio management, and asset allocation. ISS does not classify companies into the GICS codes. Please contact Standard amp Poor8217s at 1-800-523-4534 if you believe that a company has been misclassified. Are the same peer companies used for a company8217s allowable cap on an equity plan proposal (as used under the pay-for-performance analysis)No, the list of companies shown in the executive compensation section is not the same peer group used in calculating a company8217s allowable cap on an equity plan proposal. The peer group used for benchmarking executive pay is based on a combination of industry and size (revenueassets and market cap) the peer group used for creating the allowable cap calculations for stock-based compensation is based on industry, with adjustments for market cap size. How are the peer medians calculated for the Components of Pay tableThe median is separately calculated for each component of pay and for the total annual compensation (TC). For this reason, the median total compensation of the peer CEOs will not equal the sum of all the peer median pay components, because the values are calculated separately for each pay component the median TC reflects the median of TC of the peer group constituents. Problematic Pay PracticesCommitments on Problematic Pay Practices What is ISS8217 Problematic Pay Practices evaluation Pay elements that are not directly based on performance are generally evaluated on a CASE-BY-CASE basis considering the context of a company8217s overall pay program and demonstrated pay-for-performance philosophy. The list below highlights the problematic practices that carry significant weight in this overall consideration and may result in adverse vote recommendations: Repricing or replacing of underwater stock optionsSARS without prior shareholder approval (including cash buyouts and voluntary surrender of underwater options) Excessive perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting New or extended agreements that provide for: o CIC payments exceeding 3 times base salary and averagetargetmost recent bonus o CIC severance payments without involuntary job loss or substantial diminution of duties (8220single8221 or 8220modified single8221 triggers) o CIC payments with excise tax gross-ups (including 8220modified8221 gross-ups). Would an agreement which is automatically extended (e. g. an evergreen feature) but is not modified warrant a negative vote recommendation if it contains a problematic pay practice)Automatically renewingextending agreements (including agreements that do not specify any term) are not considered a best practice, and existence of a problematic practice in such a contract is a concern. However, if an 8220evergreen8221 agreement is not materially amended in manner contrary to shareholder interests, it will be evaluated on a holistic basis, considering a companys other compensation practices along with features in the existing agreement. The policy lists the most problematic practices. What is the full list of pay practices that are considered problematic and may result in a withhold or against recommendation, on a case-by-case basisBased on input from client surveys and roundtables, ISS has identified certain adverse practices that are contrary to a performance-based pay philosophy, which are highlighted in the list below. o Egregious employment contracts: Contracts containing multi-year guarantees for salary increases, non-performance based bonuses, or equity compensation. o New CEO with overly generous new-hire package: Excessive make whole provisions without sufficient rationale Any of the problematic pay practices listed in this policy. o Abnormally large bonus payouts without justifiable performance linkage or proper disclosure: Includes performance metrics that are changed, canceled, or replaced during the performance period without adequate explanation of the action and the link to performance o Egregious pensionSERP (supplemental executive retirement plan) payouts: Inclusion of additional years of service not worked that result in significant benefits provided in new arrangements Inclusion of performance-based equity or other long-term awards in the pension calculation o Excessive Perquisites: Perquisites for former andor retired executives, such as lifetime benefits, car allowances, personal use of corporate aircraft, or other inappropriate arrangements Extraordinary relocation benefits (including home buyouts) Excessive amounts of perquisites compensation o Excessive severance andor change in control provisions: Change in control cash payments exceeding 3 times base salary plus targetaveragelast paid bonu s New or materially amended arrangements that provide for change-in-control payments without loss of job or substantial diminution of job duties (single-triggered or modified single-triggered, where an executive may voluntarily leave for any reason and still receive the change-in-control severance package) New or materially amended employment or severance agreements that provide for an excise tax gross-up. Modified gross-ups would be treated in the same manner as full gross-ups Excessive payments upon an executive8217s termination in connection with performance failure Liberal change in control definition in individual contracts or equity plans which could result in payments to executives without an actual change in control occurring o Tax Reimbursements: Excessive reimbursement of income taxes on executive perquisites or other payments (e. g. related to personal use of corporate aircraft, executive life insurance, bonus, restricted stock vesting, secular trusts, etc see also excise tax gross-ups above) o Dividends or dividend equivalents paid on unvested performance shares or units. o Internal pay disparity: Excessive differential between CEO total pay and that of next highest-paid named executive officer (NEO) o Repricing or replacing of underwater stock optionsstock appreciation rights without prior shareholder approval (including cash buyouts, option exchanges, and certain voluntary surrender of underwater options where shares surrendered may subsequently be re-granted). o Other pay practices that may be deemed problematic in a given circumstance but are not covered in the above categories. Why does ISS now consider hedging and pledging of company stock under its policy framework for the election of directors, rather than under the problematic pay practices policyIn considering new policy related to the significant pledging of company stock, ISS obtained market feedback from our policy survey, roundtables, comment letters, and other means. While shares that are used by executives or directors who engage in hedging or pledging transactions often have been acquired via compensation programs, many investors expressed the view that the board is specifically responsible for setting policies related to risks to shareholder value. Since both hedging and pledging raise such risks, ISS decided to move this aspect of the policy to the appropriate section, election of directors, where it will be evaluated under the Egregious Actions framework. How does ISS view hedging or significant pledging of company stock by an executive or directorHedging is a strategy to offset or reduce the risk of price fluctuations for an asset or equity. Stock-based compensation or open market purchases of company stock should serve to align executives8217 or directors8217 interests with shareholders. Therefore, hedging of company stock through covered call, collar or other derivative transactions sever the ultimate alignment with shareholders8217 interests. Any amount of hedging will be considered a problematic practice warranting a negative vote recommendation against appropriate board members. Please see the Frequently Asked Questions (excluding Compensation) Board Accountability for more insight on ISS policy in this regard. After its most recently completed annual andor long-term performance cycle ended with no payout (due to failure to achieve goals), a company granted retention awards of cash or equity to executives. How would ISS view such awardsInvestors do not expect boards to reward executives when performance goals are not achieved, whether by 8220moving the goalposts8221 (i. e. lowering goals) or granting other awards to compensate for the absent incentive payouts. They recognize, however, that retention of key talent may be critical to performance improvements and future shareholder value. Companies that grant special retention awards of cash or equity to executives when regular incentive plan goals are not met should provide clear and compelling rationale in their proxy disclosure. Awards of cash should be conservative and reflect the fact that performance is lagging (i. e. should generally be significantly less than unearned target award levels). Optimally, 8220extra8221 awards designed to encourage retention should also include performance conditions that will ensure strong alignment of pay and performance going forward and avoid 8220pay for failure8221 scenarios if the executive is not retained. Does the presence of single trigger vesting acceleration in an equity plan result in an automatic AGAINST recommendation for the plan, the say on pay vote, the entire compensation committee, or the full boardThere are no automatic negative recommendations under ISS policy. We will consider all relevant aspects included with the companys ultimate disclosure. With regard to equity-based compensation, ISS policy encourages double trigger vesting of awards after a CIC (considered best practice). In the absence of double-triggered vesting, the current preferred practice is for the board to have flexibility to determine the best outcome for shareholders (e. g. to arrange for outstanding grants to be assumed, converted, or substituted), rather than the plan providing for automatic accelerated vesting upon a CIC. Equity plans or arrangements that include a liberal CIC definition (such as a very low buyout threshold or a CIC occurring upon shareholder approval of a transaction, rather than its consummation), coupled with a provision for automatic full vesting upon a CIC, are likely to receive a negative recommendation. While guaranteed multi-year incentive awards remain problematic, is providing a guaranteed opportunity for what ISS considers a performance-based vehicle acceptableWhile guaranteeing any executive pay elements (outside of salary and standard benefits) is not considered best practice, the fact that the payout of such an award would ultimately depend on performance attainment (i. e. no payout would occur if performance is below a specified standard), assuming the performance hurdles appear reasonably, robust would generally mitigate concerns about the guaranteed award opportunity. Are material amendments other than extensions of existing contracts a trigger for analysis with respect to problematic existing contract provisionsShareholders are concerned with the perpetuation of problematic practices thus, agreements that are extended or new will face the highest scrutiny and weight in ISS8217 analysis. Material amendments will be considered an opportunity for the board to fix problematic issues, but as part of the holistic analysis. In 2009, in response to an ISS vote recommendation, a company adopted a policy prohibiting payments of tax gross-ups made on life insurance premiums in new or amended agreements. Certain officers were grandfathered at that time, and they continue to receive such payments. Is that policy, which ISS approved, to no longer be honored by ISSAll factors are weighed in the holistic analysis including existing agreements, commitments, and continuing practices of the company. However, unless the existing contracts are extended, they do not rise to the level of the most problematic practices. Will commitments entered into in 2010 or prior, before ISS announced its policy not to consider forward-looking commitments for the 2011 Proxy Season, be 8220grandfathered8221 Commitments not to enact problematic features in future agreements will no longer mitigate the enacting of problematic pay practices in new or amended agreements during the prior fiscal year. If a company put excise tax gross-ups in new agreements in the last fiscal year, what action can they take to prevent an against recommendation from ISSA company can remove that provision from the new agreements. Frequency of Advisory Vote on Executive Compensation In the event that a companys board decides not to adopt the say on pay vote frequency supported by a plurality of the votes cast, what are the implications in terms of ISS voting recommendations at subsequent meetings Per 2012 policy, if the board adopts a longer frequency for say-on-pay votes than approved by a plurality of shareholder votes, ISS will make a case-by-case recommendation, considering the following: The board8217s rationale for choosing a frequency that is different from the frequency which received a plurality The company8217s ownership structure ISS8217 analysis of the company8217s executive compensation and whether there are compensation concerns or a history of problematic compensation practices and The previous year8217s support level on the company8217s say-on-pay proposal. Advisory Vote on Golden Parachutes (SOGP) An event has technically triggered a change in control according to the company8217s formal definition however the company continues to exist and there is minimal impact on board turnover or management structure. How would ISS apply its SOGP policy in this regard In cases where ISS concludes that a bona-fide change in control event has not occurred (e. g. the company8217s equity remains outstanding and the board is not significantly affected) ISS views that severance payments or automatic acceleration of outstanding equity awards should not occur. If ISS8217 policy framework is not applicable due to unusual circumstances, recommendations will generally be made on a case-by-case basis, taking into consideration whether the outcome is beneficial to shareholders. How would ISS determine that the performance measures would not have been achieved in the absence of the decision to accelerate the performance based awards If a truncated performance period is used, then how would ISS know whether the performance measures would not have been achieved had no CIC transaction occurredBest practice is pro rata vesting based on current achievement. If it is impossible to measure performance under pre-determined performance criteria the board should justify paying an award as if target or highest performance goals were met. How does ISS determine whether specified golden parachute payouts are 8220excessive8221In evaluating disclosed payouts related to a change in control with respect to the SOGP proposal, ISS may consider a variety of factors, including the value of the payout on an absolute basis (e. g. relative to an executive8217s annual compensation) or one or total payouts relative to the transaction8217s equity value. There are no bright line thresholds for these considerations, since they are made in conjunction with other factors in ISS8217 review. How will ISS consider existing problematic change-in-control severance features in its SOGP evaluationBeginning in 2013, ISS will consider existing (as opposed to new in the last year) problematic features such as excise tax gross-up provisions and single and modified single payout triggers in determining a vote recommendation on SOGP proposals. In general, legacy excise tax gross-up provisions will be considered in the context of the amount of actual tax gross-ups reported as part of the company8217s SOGP disclosure. Legacy singlemodified single triggers also may be considered in the context of the total change-in-control payout and whether they result in unjustifiable payouts in the absence of an executive8217s termination without cause in connection with the change in control. Equity Related Option RepricingExchange Proposals With the market rebound, fewer companies are seeking shareholder approval for option exchange programs. If a company were to consider such a program, can you provide additional guidance besides the standard shareholder friendly features, such as value-for-value exchange, exclusion of named executive officers and directors, resetting vesting schedules Option exchange creates a gulf between the interests of shareholders and management, since shareholders cannot reprice their stock. Option exchange should be the last resort for management to use as a tool to re-incentivize employees. Only deep underwater options should be eligible for the program rather than somewhat underwater options, especially if the companys stock is volatile. Using a companys 52-week high as the threshold exercise price may be reasonable in a depressed economy, but it may not be rational in a market rebound. A companys 52-week high may be its current stock price which may suggest that these options are marginally underwater. As a rule of thumb, the threshold exercise price for eligible options should be the higher of the 52-week high or 50 percent above the current stock price. That way, only deep underwater options are eligible for the program. However, this rule of thumb should not be considered in isolation, as there are several other factors, such as the timing of the request and whether the company has experienced a sustained stock price decline that is beyond managements control among others. Further, a companys current stock price can be a consideration as well. A premium of 50 percent for a company trading at 1 may be a low threshold if the companys stock price is particularly volatile. A company should discuss the various levels of employees (management versus non-management) who will be eligible participants in the program. Some companies have broad-based option programs whereas others tend to grant to management at the Vice President level. Absent such disclosure, institutional investors may assume that equity grants are generally awarded to management. Cost of Equity Plans A company has a May 2013 shareholder meeting and did not start trading until January 2013. ISS would normally use a December QDD for this company but there is no data for this company. What would be ISS8217 approach in determining the company8217s stock price in evaluating its equity plan proposal Here is the hierarchy of choices that ISS uses to determine stock price with respect to equity plan proposal evaluations: 200-day avg. stock price as of the applicable QDD 50-day avg. stock price as of the applicable QDD Closing stock price as of applicable QDD If applicable QDD is not available, use most recent QDD 200-day avg stock price If applicable QDD is not available, use most recent QDD 50-day avg stock price If applicable QDD is not available, use closing price as of the most recent QDD Last resort, use current stock price How does ISS look at the practice of buying shares on the open market to fund employees8217 equity grantsThe practice of repurchasing shares on the open market in order to avoid dilution from employees equity grants may be beneficial to shareholders if this represents a good use of the companys cash. However, there is still a cost to the company, and we would still capture that cost by our SVT calculation. In an efficient market, the buyback should have a positive impact on the companys stock price despite the reduction in outstanding shares. Therefore, it should have a generally neutral effect on market valuation. In addition, when a buyback is executed, a company immediately receives higher EPS and other share denominated accounting performance metrics, which in turn may lead to higher allowable cap. With respect to burn-rate calculations, ISS uses the weighted average number of outstanding common shares for the applicable year(s), which smooths out the impact of both share buybacks and share issuances. Adjustments to reduce the voting power dilution may be made if the share repurchase is implemented to offset dilution from stock-based compensation and if such repurchase is made within the past two years. What is the policy on stock in lieu of cash plansISS includes all stock in lieu of cash plans in evaluating the total costs of equity plans. ISS believes that cash or stock payments are considered as compensation to the employees and therefore should be considered in evaluating equity proposals. The total cost of equity-based compensation to directors is also generally considered under the compensation model. However, some stock-based plans do provide directors to take all or a portion of their cash compensation in the form of stock. If such plan provides for a clear dollar-for-dollar stock exchange of the cash compensation, ISS will view the stock in lieu of cash as value neutral for SVT purposes. Any other non-value neutral form of exchange which may include a premium for deferring cash compensation for stock is considered by ISS to cause transfer of shareholders equity which should still be measured. A non-REIT company would like ISS to consider its limited partnership (LP) units as part of the company8217s common shares outstanding when determining market capitalization in the shareholder value transfer analysis and weighted common shares outstanding in the burn rate analysis. Currently, operating partnership (OP) units are included for REIT companies because each OP unit is generally equivalent to one share of common stock and is convertible into common stock. OP units also receive the same dividend payout as common stock. ISS applies a case-by-case analysis to determine if a company8217s convertible equity or debt should be considered as part of common stock outstanding. If the convertible vehicle carries direct voting and dividend rights and may be converted into common stock, then ISS may include such convertible vehicle as part of common stock outstanding. The total number of outstanding convertible vehicle, vested or unvested should be clearly disclosed in the company8217s proxy statement or 10-K. Burn Rate Policy How does ISS calculate the burn rate and annual stock price volatility The annual burn rate is calculated as follows: Annual Burn rate ( of options granted of full value shares awarded Multiplier) Weighted Average common shares outstanding) Stock Volatility is based on the 3-year historical volatility as of the company8217s quarterly data download, then annualized: Annualized stock volatility Stock Volatility X Square Root of 250. A company went public two and a half years ago. However, the 10-K discloses three years of historical grant information. Does the burn rate policy applyThe burn rate policy applies to companies that have been publicly traded for three complete fiscal years. However, ISS will closely scrutinize cases where there is any unusual outsized equity grant made just before the three-year burn rate policy becomes applicable to such companies. Such scrutiny may result in application of the burn rate policy, if appropriate. What action may a company take if it fails to meet the three-year average burn rate policyA company may commit to a prospective gross three-year average burn rate, which excludes stock options with a reload feature granted prior to 2005, equal to the higher of two percent of the company8217s common shares outstanding or the mean plus one standard deviation of its GICS peer group. A company8217s burn rate may exceed the peer group average in the first year, provided the prospective three-year average burn rate remains below the commitment level. The company would need to publicly notify shareholders of its commitment via, e. g. a form 8-K, DEFA14A, or in the summary plan description of the stock plan proposal in the DEF14A. The company would also be required to disclose in its future proxy statements the status of the commitment during the applicable period. 8220The Company commits that, with respect to the number of shares subject to awards granted over the next three fiscal years period of time, we will maintain an average annual burn rate over that period that does not exceed x of weighted common shares outstanding. For purposes of calculating the number of shares granted in a particular year, all awards will first be converted into option-share equivalents. In this case, each share that is subject to awards other than options will count as equivalent to current multiplier option shares. 8220 Making a commitment does not guarantee a vote change if ISS believes there are concerning flaws that remain in the company8217s equity plan design. Also, when the plan potentially propagates an egregious compensation practice that was identified, a recommendation AGAINST the plan may persist. Note that when a prior burn-rate commitment was modified or has been violated mid-stream, it may warrant a vote AGAINST the plan absent justifiable reasons, or in some cases, may result in a recommendation AGAINST the compensation committee members. What multiplier is used to evaluate whether the company has fulfilled its burn rate commitmentMost companies, as part of their burn rate commitment, 8220lock in8221 the current year8217s multiplier to reduce uncertainty. If the multiplier is thus specified in the commitment, ISS will use that multiplier. If a company did not lock in the multiplier as part of their burn rate commitment, then ISS uses the multiplier that applies to them in the year we are analyzing them to see if they fulfilled their burn rate commitment. Are reload options included in the numerator of the three-year burn rate calculationYes, reload options are included. ISS anticipates that many companies will eliminate reload options since FASB maintained under SFAS 123R that they must be counted as separate grants. However, reload options are excluded in the prospective three-year average burn rate commitment. Which burn rate policy applies to a company whose GICS classification or Index Membership has been recently changedPresumably, the new classification or index membership will reflect the appropriate operational and revenue size thus the burn rates that are reasonable for the compensation structure of similar companies under the new classification will apply. In very limited cases, ISS may consider a modified burn-rate commitment. Does the burn rate policy apply to a company that has been recently acquiredYes. For companies that have been acquired, we would generally use the three-year average burn rate data for the acquirer. For companies that have merged in a merger of equals, we would generally average the three-year average burn rate for both companies. If a company assumes an acquired companys stock options in connection with a merger, will ISS exclude these stock options in the three-year average burn rate calculationIf the company discloses in the option activity table of the 10-K the number of assumed options in connection with the merger, ISS will not include assumed options for that year. However, if the company does not separate the number of assumed options and number of options granted, the assumed options will be included. This exclusion does not apply to new (inducement, recruitment, retention) equity awards granted following an acquisition, as these have the effect of depleting the available share reserves for compensation purposes. How many prospective burn rate commitments may a company maintain at one timeShareholders prefer to see clear demonstration that a company is fulfilling a burn rate commitment before accepting a new commitment thus, consecutive-year commitments will generally not be accepted. In the case of a company that has made multiple overlapping burn-rate commitments, each average burn-rate commitment level is expected to be maintained for the applicable commitment period (i. e. a second burn-rate commitment does not supersede a prior one that is still in effect). What are the implications for a company that is unable to fulfill its burn rate commitmentISS may recommend that shareholders withhold votes from the compensation committee members and is unlikely to accept another burn rate commitment from the company due to the company8217s failure to fulfill its burn rate commitment made to shareholders previously. If a company reprices options, how will the shares be counted to avoid double countingIf the company discloses the number of repriced options in the option activity table of the 10-K, and the repricing was approved by public shareholders, ISS will not include repriced options for that year. However, if the company does not separate the number of repriced options from number of options granted, the repriced options will be included. If a company grants performance-based awards, how will the shares be counted to avoid double countingIf the company clearly distinguishes the portion of unearned performance-based awards from the year8217s grants in its proxy statement or 10-K, ISS will not include these in the burn-rate calculation, provided that the company also clearly discloses the number of performance shares that vest each year based on attainment of performance goals. Actual performance-based shares earned, deferred shares earned, or any performance-based equity awards that deplete the share reserve will be counted as they are earned, provided that all disclosure is adequate. In general, time-based awards are counted in the year in which they are granted, and performance-based awards are counted in the year in which they are earned (subject to adequate disclosure practice). Liberal Share Recycling What is the liberal share recycling policy Plans that have liberal share recycling provisions, i. e. where shares granted and exercised can, under certain circumstances, be added back to the plan reserve for future grants, will receive a more costly valuation in that all shares will be evaluated in the ISS model as full-value awards. Under what circumstances are shares considered recycledFor purposes of ISS liberal share recycling policy, recycled shares may include, but are not limited to, the following: Shares tendered as payment for an option exercise Shares withheld from exercised shares for taxes Shares added back that have been repurchased by the company using stock option exercise proceeds Stock-settled SARs where only the actual shares delivered with respect to the award are counted against the plan reserve. Are SARs settled in cash considered recycledIn cases where a plan allows SARs to be settled in either cash or stock, ISS will assume all to be stock-settled. If the plan also provides that only the net shares delivered with respect to the award will be counted against the plan reserve, the liberal share recycling policy will be triggered. What happens if a company provides a limit on the number of shares that it can recycleIf there is an articulated limit on full value awards and it is explicit that liberal recycling is only allowed on full value awards, then ISS will apply the limit accordingly as stated. However, if liberal recycling is also permitted on other forms of awards (i. e. options), then ISS will consider that the recycling feature effectively nullifies the stated limit under the plan because of the additional cost attributed to the potential of recycling other types of awards. Does ISS consider the cancellation and regrant of stock optionsSARs as repricing What about the cancellation of stock optionsSARs for cash payments Yes, ISS considers the above two scenarios as repricing and will recommend an AGAINST vote on the equity plan if the company allows such arrangement without shareholder approval. What progressive action may a company take if it fails to meet the repricing provision policy in equity plansCompanies may eliminate the provision that allows the board or the administrator discretion to implement any form of repricing without seeking prior shareholder approval. Alternatively, such provisions can also be explicitly superseded by a statement clarifying that any transaction allowing for an economic value exchange by optionees will require further shareholder approval. 8220Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, distribution (whether in the form of cash, Common Shares, other securities or other property), stock split, extraordinary cash dividend, recapitalization, change in control, reorganization, merger, consolidation, split-up, spin-off, combination, repurchase or exchange of Common Shares or other securities, or similar transaction(s)), the company may not, without obtaining stockholder approval: (a) amend the terms of outstanding Options or SARs to reduce the exercise price of such outstanding Options or SARs (b) cancel outstanding Options or SARs in exchange for Options or SARs with an exercise price that is less than the exercise price of the original Options or SARs or (c) cancel outstanding Options or SARs with an exercise price above the current stock price in exchange for cash or other securities. Liberal Definition of Change in Control What is the policy on liberal change in control definitions found in equity plans ISS may recommend a vote AGAINST an equity plan if it could permit accelerated vesting of equity awards based upon a liberal change in control definition (e. g. a trigger linked to shareholder approval of a transaction, rather than its consummation, or an unapproved change in less than a substantial proportion of the board, or acquisition of a low percentage of outstanding common stock, such as 15 percent). What progressive action may a company take if its equity plans contain liberal change in control definitionsA company may qualify the problematic change in control definition to be preconditioned on determinate events that effectively constitute a change in control event, such as 8220consummation of a transaction8221 or 8220constructive loss of employment (double-triggered CIC).8221 Sample language: Change in Control shall be deemed to have occurredupon the consummation of a merger or consolidation of the Company with any other corporation. For an existing plan that is being amended, as opposed to a new plan, it is acceptable to specify that the CIC definition is effective for grants made after the plan amendment date. Fungible Plans How does ISS evaluate flexible share plans or fungible share pools Under a flexible share plan, each full-value award counts more than one share and each option counts as one share of the plan reserve. ISS evaluates the total costs of the plan by analyzing a flexible share plan under two scenarios: (1) all new shares requested as full value awards (2) all new shares requested as stock options. Under the first scenario, ISS adjusts the number reserved according to the ratio provided in the plan document. ISS will support a flexible share plan as long as both scenarios generate total costs below the allowable cap. ISS presents the more costly scenario in our proxy analysis. 162(M) Plans A post-IPO company submits an equity plan that has problematic issues (e. g. repricing provisions) for approval by public shareholders for the first time, solely for 162(m) purposes. The company will not be adding shares to the plan or in any way changing any provision in the plan. Will ISS review the plan Per 2012 policy updates, while ISS generally recommends support for 162(m) plan approvals, all equity plans put up for shareholder approval, for any reason, for the first time following a company8217s IPO will receive a standard analysis, including SVT calculation and a review of plan features. This is to ensure that any adverse provisions would not have a more detrimental potential impact on shareholders than a potential loss of tax deductions related to named executive officer grants. Stock Option Overhand Carve-Out When will ISS apply the stock option overhang carve-out policy Companies with sustained positive stock performance and high overhang cost attributable to in-the-money options outstanding in excess of six years may receive a carve-out of these options from overhang as long as the dilution attributable to the new share request is reasonable and the company exhibits sound compensation practices. A company needs to demonstrate that the in-the-money options outstanding in excess of six years have been continuously in-the-money after they were vested. The fact that employees had the opportunity to exercise these options but chose not to exercise them may reflect the confidence they have in the companys future prospects. Presenting in-the-money options in excess of six years is not sufficient information for ISS to determine whether these options were continuously in-the-money after they were vested. Companies are advised to provide the individual tranches of option grants with grant dates, option exercise prices and vesting schedules so that ISS can analyze the portion of in-the-money options to potentially carve out from the overhang. In the stock option overhang carve-out policy, what does ISS consider to be sustained positive stock performanceISS generally looks for positive 5-year total shareholder return (TSR) as well as positive year over year performance for the past five fiscal years at the time of the analysis. Exceptions may be made if stock performance was negative for the first two years and then strongly positive for the remaining three years, but vested grants that have been underwater for a substantial time during the 5-year period will not be eligible for the carve-out. These options should be deeply in the money for the periods where the companys stock performance was only high for the latest three years. A comparison of the companys five-year TSR against its four-digit GICS group can be helpful. Is ISS making any exceptions to the sustained positive stock performance criteria in light of the financial debacle experienced by almost all companies in 2009ISS recognizes that companies are affected by the global recession and would take that into consideration of the companys stock performance during this tumultuous period. Strong performing companies have experienced significant market rebound and should reflect that the stock price decline is temporary. Can ISS provide an example of a company providing such disclosure in order for ISS to carve out continuously in-the-money options outstanding in excess of six yearsPlease see Myriad Genetics DEFA 14A filed Oct. 28, 2009, Air Products and Chemicals8217 8K filed Jan. 5, 2010, NVR8217s DEF 14A filed March 19, 2010. How does ISS define high overhang cost in applying the stock option overhang carve-out policyHigh overhang cost means that the sum of outstanding options and stock awards and remaining shares available under existing equity plan(s) should exceed or approach the companys specific allowable cap. Outstanding options and stock awards must be a significant driver of the high overhang, and should be in the range of 75 to 100 percent of the total overhang. What does ISS look for with respect to the distribution of awards to executives vs. other employees (concentration ratio) in the stock option overhang carve-out policyISS will calculate the concentration ratio in the past fiscal year, defined as total equity grants to the top five executives divided by total equity grants to employees and directors. Concentration ratios greater than 50 percent to named executive officers may be concerning. Note: The questions and answers in this FAQ page are intended to provide high-level guidance regarding the way in which ISS8217 Global Research Department will generally analyze certain issues in the context of preparing proxy analysis and vote recommendations for U. S. companies. However, these responses should not be construed as a guarantee as to how ISS8217 Global Research Department will apply its benchmark policy in any particular situation. Institutional Shareholder Services (ISS) has posted an eight-page white paper entitled An Investor Guide to the Stock Option Timing Scandal . The paper provides a good overview of the recent option backdating and spring-loading revelations. There has been a number of posts in the blawgosphere debating the legality of backdating and spring-loading. While these practices are not necessarily illegal, as the paper points out: The option-timing scandal. calls into question the oversight provided by boards and compensation committee members at these companies. Investors may fear that other accounting problems exist but have yet to come to light. The disclosure of backdating sends a 8216signal that management is willing to fudge numbers for their own benefit and they might be willing to play other accounting tricks.8217 ISS recommends the following as best practices for option grants: Adopt 8220blackout8221 periods to preclude stock grants when company executives have material, non-public information in hand. Adopt fixed grant date schedules that provide for grants on a periodic basis (monthly, quarterly, or annually), along with rules for the establishment of option exercise prices on such grant dates. Refrain from making grants on these fixed dates when executives have market-moving news. Disclose the rationale for grants on a certain date, explaining why the compensation committee chose that date over other possible dates. File Form 4 reports on option grants promptly with the SEC. While these practices would certainly go a long way towards eliminating backdating and spring-loading, as Geoff pointed out essentially on day one of the scandal (see here ), option timing can be an efficient form of compensation. SEC Commissioner Atkins recently expressed a similar view regarding spring-loading in a speech before the International Corporate Governance Network (see here ). This view, however, has not been particularly well received (see, e. g. here ), perhaps in part for the reasons Tom discusses here . It will be interesting to see how many companies adopt the measures recommended by ISS. For companies embroiled in the scandal, the lost flexibility in designing a compensation package would likely be outweighed by the potential restoration of investor confidence. For companies outside the fray, perhaps the scandal will simply result in a couple of lines of added disclosure along the lines of 8220The compensation committee may, in the exercise of its business judgment, from time to time approve grants of options shortly before the public disclosure of favorable company developments.8221 Rate this: Share this: Like this: Post navigation Bill 8212 162(m) has been interpreted in a way that equates performance-based with a rise in stock price. In-the-money options are not treated as performance based because they would have value even if the stock price declined a bit. Backdated options are the functional equivalent of in the money options. Spring-loaded options are at best a closer case. Mind you, I8217m not defending the way that the tax code draws a silly line between in the money and at the money options. It should all be deductible. And yes, only companies with a positive marginal tax rate will care. Some tech companies don8217t I wonder if this helps explain the pattern of backdating. I8217m not aware of any authority either way on spring-loaded options. Why do you think it seems like an aggressive stance (it may very well be, but since you are the tax expert I was hoping you could elaborate) Also, wouldn8217t the full brunt of the 35 penalty generally only apply to companies that have sufficient taxable income in the year of grant to take advantage of the deduction Bill 8212 Just as a side note, the efficiency argument falls apart if you lose the tax deduction under 162(m), and possibly run afoul of 409A. Is there authority out there saying that spring-loaded options are still performance-based for purposes of 162(m) It seems like an aggressive stance. I certainly agree that tying a comp committee8217s hands could appear to be inefficient for companies that don8217t have an investor confidence issue. But if the tax code has already imposed a 35 penalty on in-the-money and effectively in-the-money options, then the ISS proposals do seem sensible. I8217m surprised ISS didn8217t announce its preferred position that all options be granted at the high stock price in the year of grant. I heard they were considering recommending pricing at the high price during the vesting period, but thought that might not provide the proper incentives.