Institutional Shareholder Services (“ISS”) has announced that companies can provide it with updated information as to the company-selected compensation benchmarking peer group, beginning at 9 am EST on Tuesday, November 24, 2015. In addition, Equilar Inc.’s (“Equilar”) company-selected peer group update portal opened earlier this week. Since July 2012, Glass Lewis & Co., LLC (“Glass Lewis”) has been using peer groups generated by Equilar in its pay-for-performance analysis.
ISS and Equilar/Glass Lewis provide companies the opportunity to submit updated self-selected peer groups in advance of each proxy season. While ISS and Equilar develop their own peer groups for purposes of benchmarking a company’s executive compensation programs, they both take into account a company’s self-selected peer group and may incorporate updated peers for companies that modified their peer groups since their last disclosure. According to Glass Lewis’ website, Glass Lewis does not alter the peer group selection it receives from Equilar. Thus, companies that have revised the composition of their compensation peer group from that which was disclosed in their most recent proxy statement may use this process to provide that updated information to the proxy advisory firms.
Detailed information regarding ISS’ peer group selection methodology can be found in its FAQs on this subject, which were published on November 18, 2015 and are available here. Information regarding Equilar’s peer group updates can be found in its FAQs, which are available here.
A summary of this information appears in the table below:
| ISS | Equilar/Glass Lewis | |
| Submission windows | 9 am EST on November 24 through 8 pm EST on December 11, 2015. |
Now through December 31, 2015.
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| Companies invited to participate |
All companies in the Russell 3000 or Russell MicroCap Index with annual meetings scheduled between February 1, 2016 and September 15, 2016.
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U.S. companies in the Russell 3000 Index and Canadian companies in the S&P/TSX Composite Index that plan on filing a proxy statement between January 15, 2016 and July 14, 2016. |
| No requirement to participate | Only companies that have made changes to their peer groups need to submit new peers. If a company has made changes to its peer group but does not provide ISS updated information during the submission window, the disclosed peer group from its last proxy filing (as of December 2015) will automatically be factored into the ISS peer selection process. | Sending a submission if the peer group has not changed will have no impact on Equilar peers. If a company has made changes to its peer group but does not provide Equilar updated information during the submission window, Equilar (and therefore Glass Lewis) will take into consideration the company’s most recently disclosed proxy peer group. |
| Multiple peer groups used by company |
A company should provide the peer group used for benchmarking Chief Executive Officer (“CEO”) pay decisions (or the peer group that most closely matches that description).
If a company uses indexes or surveys for benchmarking purposes, it can share that information with ISS via the feedback web form, but given the breadth of market indices and surveys, they will not be directly used in ISS’ peer selection methodology. |
A company should submit the peer group that it plans to include as a primary peer group in its 2016 proxy statement. If the company’s proxy statement usually includes both backward-looking and forward-looking peer groups, the company should submit a finalized forward-looking peer group. |
| No peer groups used by company | If a company does not use a peer group, ISS will draw peers from the company’s own 8-, 6-, and 4-digit Global Industry Classification Standards groups, subject to ISS’ size constraints. If a company’s compensation committee does not use a peer group in setting executive compensation, a company may still provide a list of “representative peers” to ISS as long as the list is also disclosed in the company’s 2016 proxy statement. | If a company does not use a peer group, a company should submit an update with only its own company as a peer and insert into the comments “No peers.” Equilar will then generally use the company’s most recently disclosed proxy peer group. |
| Year(s) covered |
2015 fiscal or calendar year (i.e., peers used for benchmarking CEO compensation for the fiscal year that will be covered in companies’ 2016 proxy statements).
Note that if a company anticipates making changes to its peer group for the 2016 year and the anticipated 2016 changes are due to business events that have made companies in the 2015 peer group no longer relevant (e.g., significant business changes, mergers, spinoffs, or bankruptcies), ISS suggests that providing an updated peer group would be helpful. |
Equilar will consider either a company’s most recent proxy-disclosed peers or an updated peer group.
Equilar does not specify whether or not this has to be the peer group that was used to benchmark CEO pay in the last fiscal year that will be covered by the 2016 proxy statement. |
| Required disclosures | ISS expects the updated list of peers provided to ISS to be disclosed in a subsequently filed proxy statement. If the peers provided to ISS through this process are different from the peers disclosed in the proxy statement, ISS may apply additional scrutiny to this variance as part of its pay-for-performance analysis. | The instructions suggest that any updated peer group is expected to be disclosed in a subsequently filed proxy statement. |
| Submission process |
The peer group submission process can be accessed here: http://www.issgovernance.com/u-s-company-peer-group-feedback.
Companies submitting updated peer group information must follow up with an electronic copy of the submitted list on company letterhead (via email to [email protected]). Detailed instructions for this confirmation step are provided online as part of the submission process. |
To update peers via Equilar’s peer group update portal, companies should visit: https://insight.equilar.com/app/peer_update/. |
Note that, according to ISS’ FAQs, even though ISS’ methodology does take into account the company’s own peer selections, a company’s self-selected peers may not always appear in the ISS peer group, even if they meet ISS’ size (revenue or asset and market capitalization) constraints (for example, if inclusion would lead to over-representation of a particular industry within the final peer group). Similarly, while Equilar’s peer analysis begins with a company’s disclosed peer group, it ultimately generates “an interconnected network of peer companies consisting of ‘who you know’ and ‘who knows you,’” which does not always include the company’s proxy-disclosed peer group.