Editor's Note: Carol Bowie is Head of Americas Research at Institutional Shareholder Services Inc. (ISS). This post relates to ISS compensation policy guidelines for 2015. The complete publication is available here.

US Executive Pay Overview

1. Which named executive officers' total compensation data are shown in the Executive Pay Overview section?

The executive compensation section will generally reflect the same number of named executive officer's total compensation as disclosed in a company's proxy statement. However, if more than five named executive officers' total compensation has been disclosed, only five will be represented in the section. The order will be CEO, then the second, third, fourth and fifth highest paid executive by total compensation. Current executives will be selected first, followed by terminated executives (except that a terminated CEO whose total pay is within the top five will be included, since he/she was an within the past complete fiscal year).

2. A company's CEO has resigned and there is a new CEO in place. Which CEO is shown in the report?

Our report generally displays the CEO in office on the last day of the fiscal year; however, the longer tenured CEO may be displayed in some cases where the transition occurs very late in the year.

Click here to read the complete post...

" /> Editor's Note: Carol Bowie is Head of Americas Research at Institutional Shareholder Services Inc. (ISS). This post relates to ISS compensation policy guidelines for 2015. The complete publication is available here.

US Executive Pay Overview

1. Which named executive officers' total compensation data are shown in the Executive Pay Overview section?

The executive compensation section will generally reflect the same number of named executive officer's total compensation as disclosed in a company's proxy statement. However, if more than five named executive officers' total compensation has been disclosed, only five will be represented in the section. The order will be CEO, then the second, third, fourth and fifth highest paid executive by total compensation. Current executives will be selected first, followed by terminated executives (except that a terminated CEO whose total pay is within the top five will be included, since he/she was an within the past complete fiscal year).

2. A company's CEO has resigned and there is a new CEO in place. Which CEO is shown in the report?

Our report generally displays the CEO in office on the last day of the fiscal year; however, the longer tenured CEO may be displayed in some cases where the transition occurs very late in the year.

Click here to read the complete post...

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2015 US Compensation Policies FAQ

Carol Bowie is Head of Americas Research at Institutional Shareholder Services Inc. (ISS). This post relates to ISS compensation policy guidelines for 2015. The complete publication is available here.

US Executive Pay Overview

1. Which named executive officers’ total compensation data are shown in the Executive Pay Overview section?

The executive compensation section will generally reflect the same number of named executive officer’s total compensation as disclosed in a company’s proxy statement. However, if more than five named executive officers’ total compensation has been disclosed, only five will be represented in the section. The order will be CEO, then the second, third, fourth and fifth highest paid executive by total compensation. Current executives will be selected first, followed by terminated executives (except that a terminated CEO whose total pay is within the top five will be included, since he/she was an within the past complete fiscal year).

2. A company’s CEO has resigned and there is a new CEO in place. Which CEO is shown in the report?

Our report generally displays the CEO in office on the last day of the fiscal year; however, the longer tenured CEO may be displayed in some cases where the transition occurs very late in the year.

3. How is Total Compensation calculated?

Total Compensation = Base Salary + Bonus + Non-equity Incentive Plan Compensation + Stock Awards*+ Option Awards** (based on full grant date values, as calculated by ISS) + Change in Pension Value and Nonqualified Deferred Compensation Earnings + All Other Compensation. The calculation will generally match the Summary Compensation Table with the exception of the stock option value and/or stock awards, described further below.

*Stock Awards – Grant date value, generally as reported in the Grants of Plan-Based Awards Table for stock awards, but ISS may calculate values as deemed appropriate based on assessment of the grant. Note that performance shares (equity incentive plan awards) may be calculated at target value (# of shares X stock price on grant date) if it differs from the value disclosed in the GPBAT. If the stock awards disclosed in the Grants of Plan-Based Awards table reflect grants made in the current rather than past fiscal year, ISS will not include the value in our current report; pursuant to SEC disclosure requirements, the Grants of Plan-Based Award values should reflect equity awards made in the past fiscal year. The disclosed stock awards value should generally be the same in both the Summary Compensation Table and Grants of Plan-Based Awards Table.

**Option Awards – Grant date present value of options using Black-Scholes Option Pricing Model, as calculated by ISS.

4. What inputs are used in ISS’ Black-Scholes methodology?

Variable Item Source Comments
C Option Value Calculated
S Stock Price Proxy
E Exercise Price Proxy
σ Volatility XpressFeed Historical three-year stock price volatility measured on a daily basis from the date of grant. If a company has not been publicly traded for at least three years, ISS measures volatility from the IPO date through grant date.
Q Dividend Yield XpressFeed Average dividend yield over five years. If a company has not been publicly traded for at least five years, ISS averages dividend yield from the IPO date and the grant date of option. Dividend yield is based on each dividend divided by the closing stock price on the last business day before the dividend date. The calculation excludes the payouts of special dividend
R Risk Free Rate Dept of Treasury website U.S. Government Bond Yield on the date of grant corresponding to the term of the option. For example, if the option has a 10-year term, the risk free rate is the 10- year U.S. Government Bond Yield on the date of grant.
T Term/Expected Life Proxy Full term of the option.
E Base of Natural Logarithm N/A N/A
Ln Natural Logarithm N/A N/A
N(x) Cumulative Normal Distribution Function N/A N/A

5. How is the present value of all accumulated pensions calculated in the CEO Tally Sheet table?

This figure represents the amounts disclosed as the present value of the benefits for all pension plans (including qualified and non-qualified), as disclosed in the Pension Benefit table of the proxy statement.

6. How is the value of Non-Qualified Deferred Compensation calculated in the CEO Tally Sheet table?

This figure represents the summation of all deferred compensation values, from both qualified and non-qualified plans, as disclosed in the Non-Qualified Deferred Compensation table.

7. How are Potential Termination Payments calculated in the CEO Tally Sheet table?

The values for an involuntary termination without cause and a change in control related termination are provided as disclosed under the relevant termination scenario in the Change in Control Table and/or narrative of the proxy statement.

Financial Data: Total Shareholder Return and Revenue

8. Where does ISS obtain a company’s 1-year fiscal total shareholder return, 3- year fiscal total shareholder return, and revenue?

ISS obtains all financial data in the Compensation Profile from Standard & Poor’s Research Insight. Here is a link to their data dictionary.

9. How does Research Insight calculate 1-Year fiscal Total Shareholder Return (TSR)?

The one-year total shareholder return is the annualized rate of return reflecting price appreciation plus dividends (based on reinvestment as of the end of the month of the dividend payment) and the compounding effect of dividends paid on reinvested dividends over a one-year period.

10. How does Research Insight calculate 3-Year fiscal Total Shareholder Return (TSR)?

The three-year total shareholder return is the annualized rate of return reflecting price appreciation plus reinvestment of dividends (as described above) and the compounding effect of dividends paid on reinvested dividends over a three-year period.

11. How does Research Insight calculate company revenue?

Revenue is the gross sales (the amount of actual billings to customers for regular sales completed during the period) reduced by cash discounts, trade discounts, and returned sales and allowances for which credit is given to customers.

12. How does Research Insight calculate company net income (loss)?

Net income or loss is reported by a company after expenses and losses have been subtracted from all revenues and gains for the fiscal period including extraordinary items and discontinued operations.

13. Why is the CEO pay as percent of a company’s revenue showing NA (not applicable)?

If a company’s revenue is zero, the CEO pay as percent of a company’s revenue will be NA.

14. Why is the CEO pay as percent of company’s net income showing NA?

If a company’s net income is zero or negative, the CEO pay as percent of a company’s net income will be NA.

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