Performance based awards have long been championed by proxy advisors and investors as the best way to align executive incentives with shareholder outcomes. Performance awards with a three-year performance period have emerged as the dominant performance horizon in the U.S. as a result. Despite this broad market consensus, some investors have begun to show support for simpler equity structures that deemphasize performance in favor of longer time-based equity vesting periods.

Norges Bank, the investment arm of Norway’s sovereign wealth fund, is one of the most prominent proponents of an extended equity vesting period. The bank argues that performance-based equity can be expensive and complex and result in higher overall compensation than non-performance-based plans with an extended equity vesting period.

In this paper, ISS-Corporate examines these two different approaches to CEO compensation across Russell 3000 companies, comparing performance, compensation levels, investor and non-investor perceptions and governance data. (more…)