Center to ISS: Time-Based Equity Has a Place

The Compensation Committee should determine which incentive types are best to achieve its goals, whether that be performance based or time based, according to the Center’s comments to ISS and Glass Lewis on their 2024 policy surveys.

As previously reported, both proxy advisors took a surprising turn this year by seemingly opening the door to the benefit of time-based over performance-based awards. Many suspected pressure from Norges Bank, which has indeed now published a post openly criticizing proxy advisors for their “love affair with performance metrics.” Norges famously believes that performance metrics are contributing to excessive CEO pay and “lead to significantly worse returns for shareholders.”

The Center’s comments made the following points to proxy advisors:

• Time-Based Awards Are an Appropriate Form of Incentive
  
  • Companies should not be penalized for using time-based awards rather than performance awards if that is the best form of incentive to achieve goals.
    
    
  • Each Committee should determine the vesting period that is appropriate for the time-vested equity awards, holding requirements and share ownership guidelines consistent with each company’s individual circumstances.
    
    
• Board Discretion Should be Preserved 
  
  • Board directors reserve the right to exercise informed judgement in adjusting award payouts both upward and downward to ensure actual payouts align with enterprise-wide performance results.
    
    
• No One-Size-Fits-All Disclosure of Human Capital Metrics
   
  • Investor concerns about human capital disclosures should be discussed through regular shareholder engagement channels, not a ‘one-size fits all policy’ that would require companies to disclose non-financial metrics for which no reporting standard exists.
    
    
  • Such prescribed disclosures may inadvertently mislead investors and result in unintended consequences such as forcing comparability among peers where “apples to apples” comparisons should not be made.
    
    
• Current Disclosure Suffices on Perks and Make-Whole Grants
  
  • Current required grant and perquisites disclosures are sufficient and additional award details will not reveal additional material insights to investors.