Skip to content

Case Study: Compensation 101 – Pay for Performance applies to service providers as well.

Introduction

When it is time for a corporate issuer to ask shareholders for a new equity plan or to increase the available shares under an existing plan one of the first things they think about is “how many shares will ISS support.” The next step for many companies is to pay ICS, the corporate consulting arm of ISS, to determine how many shares the proxy advisory firm will support.

This is not always the best approach since ICS will only give you a view of the shares that follow ISS recommendations and not a 360-degree view of all your shareholders. The Case Study that follows serves as a cautionary tale to consider before signing up with ICS.

Assignment and Challenges

Our client is a 7 billion market capitalization financial services firm with over 90 percent of its outstanding shares held by institutional investors. Well before the proxy was filed our client paid and worked with ICS to arrive at a share number that ISS would support. The proxy was filed in the early spring of this year and our client felt confident that with the ICS consulting work performed when structuring the plan proposal, the ISS research side would recommend for the equity plan proposal.

However, when ISS released its report, our client was shocked to find out that they were recommending against the share increase for the equity plan. Obviously, this caused a high level of frustration for our client and more importantly concern as to whether the plan proposal would pass a shareholder vote.

Solution

The ICS team was in black-out during this time would not assist. Springing into action Alliance Advisors analyzed our client’s shareholder base to determine how much impact the ISS recommendation would have. Next, we compared the equity plan’s quantitative and qualitative features to the policy guidelines of their shareholders. At this point it became clear to Alliance Advisors that there was a high probability that the plan proposal, with active solicitation, would overcome the negative ISS recommendation. We then determined exactly what institutions we needed to target to overcome negative votes from the ISS influenced shares.

Not leaving anything to chance, our client and our team embarked on a shareholder outreach program to talk them through the plan. Our outreach program confirmed our research that most institutions did not have any concerns about the equity plan. We also targeted several shareholders that we knew were directly influenced by ISS and several of them disregarded ISS recommendations and voted with management.

Results

The equity plan proposal was approved by shareholders at the annual meeting with over 80 percent support.

Here are lessons learned from the above situation:

  • Analyze your shareholder base: This analysis will help you determine which or your shareholders are influenced by ISS, and how many have their own internal guidelines. This is the FIRST step a company should do before spending the money with ICS. You may find the ICS cost is counterproductive.
  • Take stock of your relationships with your shareholders: In the event ISS does recommend against your equity plan it will be important to know which of your ISS influenced shareholders you might be able to engage with to override ISS.
  • ISS support is rarely critical to getting shareholder support for your equity plan, providing that you have done a proper analysis of your shareholder base and are conducting an active solicitation: While almost all plans that ISS recommends against pass a shareholder vote, companies should not leave anything to chance. Know where you are going to get the votes to overcome ISS influenced shares that vote against and have your proxy solicitor go get them.
  • Hiring ICS guarantees you nothing but a large invoice. Too often we see issuers retaining ICS to assist with their compensation or governance needs which only takes the narrow ISS view. At Alliance Advisors our process is more comprehensive with data driven intelligence that leads to consistently successful outcomes for all our clients.

At Alliance Advisors we take a 360-degree view and will account for all your investors voting policies. Although ISS can be an important part of the proxy we do not focus solely on them. Our process is comprehensive and backed with data driven intelligence that leads to consistently successful outcomes for all our clients.

Compensation Advisory & Proxy Solicitation

A cautionary tale to consider before signing up with ICS.

Alliance Advisors Logo Transparent
Volver arriba