After a decade of complete primacy, performance-based share units (PSUs) are undergoing a moment of intense scrutiny.

Investors like CII and Norges Bank are questioning whether:

• PSUs should be the prevailing form of long-term incentives for CEOs, and
• whether they are in fact tied to better performance

In response to investor input, proxy advisors like ISS and Glass Lewis are softening their requirements around performance-based equity. It can be tough to sort through all the differing perspectives. Here is a resource we hope will help clarify how the varying findings compare to each other, which questions are being asked (and answered) and key considerations for you in your work with the Compensation Committee.

• ISS recently made headlines by breaking with its historic preference for performance-based pay, and investors seem increasingly willing to support long-vesting RSUs.
• While studies suggest that companies with innovative LTI design perform better than peers, companies should view these results with caution and undertake their own analysis to determine if their approach to long-term incentives is optimal in view of their business strategy, competitive landscape, company culture, and talent objectives.
• The Center believes that “best fit” should guide the design of executive compensation and encourages companies to resist being overly swayed by either prevailing practice or the headlines generated by limited research on LTI design and company performance.

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