December 6, 2012

ISS’s New FAQs on Peer Groups: Companies Need to Provide Input By December 21st on Changes Since ’12 Disclosures

Ning Chiu of Davis Polk provides this news from her blog:

ISS has released a detailed set of FAQs on how it will select a company’s peer group for purposes of conducting its pay-for-performance analysis. ISS uses this peer group to measure a company’s total shareholder return and CEO pay in deciding how to recommend for the say-on-pay vote.

The FAQs provide information on how ISS will select 14-24 peers from the company’s own GICS code, as well as the GICS code of the peers named in the subject company’s proxy statement. Subject to size constraints based on revenues or assets and market value, ISS describes the order in which peers will be selected from the potential universe of companies that will come up based on those GICS codes. Other questions address the use of size parameters, which are clearly key to the selection process, the GICS industry groups (financial services) where assets will be used instead of revenue, and what happens if a company discloses using more than one peer group.

In addition, by December 21st a company can inform ISS of any changes to its peer group since the 2012 disclosures, as a source of input into the ISS peer group selection.

While more information is always useful, this is unlikely to mean that companies will be able to proactively figure out the ISS peer group themselves given the complexity of GICS, the number of potential companies that ISS can choose from under this method and the use of what they term “manual judgment” in the selection process. It appears that again companies will not know who they are being measured against until they receive the ISS report.

For those companies that may have faced a say-on-pay issue last year because of perceived faulty peer groups used by ISS, note that in back-testing this new method against their analysis applied in 2012, ISS indicates that more than 95% of companies would have received the same pay-for-performance analysis.

Everybody Into the Pool! SEC’s General Counsel and Trading & Markets Director to Leave

On the heels that Corp Fin Meredith Cross is leaving to return to the private sector, the SEC announced yesterday that General Counsel Mark Cahn and Trading & Markets Director Robert Cook will soon be doing the same.

How Common Are All These SEC Departures After an Election?

I got crushed in the wake of this news by queries from members about whether this mass exodus is typical (guess I should be tapped for the director of the SEC Historical Society someday). For starters, I can’t recall three senior Staffers announcing departures within a 48 hour span. That certainly is unique (although it’s not unusual for turnover among Division Directors under a new SEC Chair). This tweet of mine was quite popular yesterday:

If the SEC’s remaining Division Directors quit tomorrow (eg. Enforcement, IM), can we hold our class outside?

So why are people leaving before the new SEC Chair settles in? It’s just a guess – but the change in the nature of working at the SEC might well be a part of it. The SEC is constantly blasted in the press, harassed by Congress and treated like dirt by the courts. And compared to private practice, the pay is a fraction. What would you do?

The other question I fielded was whether it was unusual for a SEC Chair to step down after a Presidential election. The answer is certainly not.

Here is the math: Elisse will be the 30th SEC Chair. Backing out the first Chair – Joe Kennedy – because his appointment was tied to the statute creating the SEC, there are 29 Chairs that have been appointed and 16 of those have been confirmed within 12 months of a Presidential election. That’s 55% of the time (and I didn’t even account for new Chairs because someone stepped down due to death, illness or controversy). And it’s even more pronounced of a trend if you just analyze the last 50 years – 12 out of 17 Chairs during that period were confirmed within 12 months of an election – for a whopping 71%. Here’s a list of the SEC Chairs if you want to do the math yourself.

Learn more about the intricacies of the SEC during our webcast today: “How the SEC Really Works.”

– Broc Romanek