Introduction of Quantitative Assessment Follows Roll-Out in Europe
SYDNEY (May 10, 2017) – Institutional Shareholder Services Inc. (ISS), a leading provider of corporate governance and responsible investment solutions to the global financial community, today announced plans to implement in its proxy research analyses a pay-for-performance quantitative analysis in its coverage of the top 300 Australian companies effective later this year.
Results of the quantitative pay-for-performance evaluation will be reflected in ISS research reports for annual meetings on or after 1 October, 2017. Similar to other markets where an ISS pay-for-performance model and quantitative analysis is already used (U.S., Canada, U.K. and all main European markets), the assessment for ASX300 firms will be undergirded by three tests that measure the alignment between CEO pay and company performance on both an absolute and relative basis:
- Relative Degree of Alignment. This relative measure compares the percentile ranks of a company’s CEO pay and total shareholder return (TSR) performance, relative to an industry-and-size derived comparator group, over a three-year period.
- Multiple of Median. This measures the CEO’s pay relative to the median pay for the CEOs of its comparator group for the most recent year.
- Pay-TSR Alignment. This absolute measure compares the trends of the CEO’s annual pay with the value of an investment in the company over the prior five-year period.
As part of the pay-for-performance evaluation, ISS will construct a peer group of 11 to 24 companies for each subject company to be used for the relative measures. Peer companies will be limited to those located in Australia and will be reasonably similar to the subject company in terms of industry profile and market capitalization.
“Institutional investors have long made clear their preference for judicious, timely, and comprehensive assessments of CEO pay relative to company performance,” said Vas Kolesnikoff, Head of Australia and New Zealand Research at ISS. “With this introduction, our clients will be assured of having actionable insight, alongside our qualitative assessment, with which to better gauge the efficacy of portfolio company remuneration packages.”
The roll-out of ISS’ quantitative pay-for-performance assessment for select Australian companies follows the approach most recently implemented in Europe where such measures are now applied to STOXX600 constituents. Pay-for-performance tests also apply in Canada both to TSX/S&P Composite companies and those whose ballot features a say-on-pay resolution, along with nearly 4,000 companies in the U.S. where the concept was first unveiled in 2012.
For the benefit of all market constituents, ISS will release additional information on the Australian pay-for-performance measures over the coming months and in advance of the 1 October, 2017, effective date.
