Defining Pay in Pay for Performance

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2012-10-05


Editor’s Note: Matteo Tonello is managing director of corporate leadership at the Conference Board. This post is based on an issue of the Conference Board's Director Notes series by James D.C. Barrall, Alice M. Chung and Julie D. Crisp, attorneys at Latham & Watkins LLP; the full issue, including footnotes, is available for download here.

Why 2012 Was the Year of Pay for Performance

Whether the pay of a company’s CEO and other executive officers is aligned with the company’s performance has been the single most important and controversial executive pay issue for U.S. public companies since the advent of mandatory say-on-pay votes under the Dodd-Frank Act, which applied to most U.S. public companies in 2011; smaller reporting companies will face these votes and issues in 2013. As we wrote in our Director Notes “Proxy Season 2012: The Year of Pay for Performance,” 2012 was indeed the year of “pay for performance.” This has been proven by the over 2,000 say-on-pay vote results reported through September 5, 2012.

The stage for the 2012 pay-for-performance debate was set in 2011, when Institutional Shareholder Services Proxy Advisory Services (ISS), which is widely regarded as the most influential U.S. proxy adviser, applied a crude two-step test to assess pay for performance in making its say-on-pay voting recommendations.

Generally, under its 2011 test, ISS concluded that a pay-for-performance “disconnect” existed if:

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Matteo Tonello, The Conference Board,

Date tagged:

10/05/2012, 12:22

Date published:

10/05/2012, 08:58