Problematic Pay Practices - as identified by ISS
(based on its U.S. compensation policies, as updated December 6, 2019)
On at least an annual basis, those who make executive compensation decisions for public companies should check their practices against the guidelines published by ISS and other proxy advisory firms. The table below reformats, but generally tracks, the U.S. Compensation Policy FAQs that ISS most recently updated on December 9, 2019. All references are to FAQ #43 unless another is noted.
When reviewing the table below, directors should first aim to determine whether their company has executive compensation structures that involve problematic practices. The best companies avoid or eliminate such irritants to shareholders, unless there are solid business justifications for them. For instance, the payment of tax gross-ups for golden parachute taxes is generally criticized. Nevertheless, tax gross-ups may be justifiable under some circumstances, such as when executive compensation is being restructured, to be more performance-based, in anticipation of a corporate sale. Overall, boards should be careful to identify (and to justify) any problematic pay practices, because ISS and others will likely scrutinize them if incumbent directors do not.
|Employment Contracts||Egregious contracts containing multi-year guarantees for –|
|New CEO's Pay||Overly generous new-hire package [evidenced by] --|
|Pension/SERP||Egregious payout [potential from]:|
|Perquisites or Tax Gross-ups|
|Severance and Other Change in Control (CIC) Benefits|
|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)|
|Internal Pay Disparity||Excessive differential between CEO total pay and that of next highest-paid named executive officer (NEO).|
Director Compensation (Excessive)
|Externally-managed issuers (EMIs)||Insufficient executive compensation disclosure by EMIs such that a reasonable assessment of pay programs and practices applicable to the EMI's executives is not possible.|
Time of ISS Consideration
(actions after fiscal year end)
FAQ 69 [New in 2017] PAY RATIO
See generally:annual proxy statement planning for a comprehensive discussion of issues to address when preparing executive compensation disclosures.
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