While ISS informally announced that it will not be taking the CEO Pay Ratio into account in its recommendations (at least this year), its most recent policy survey results have given us some surprising new insights into how investors may be taking a different approach.
In a shocking twist, “nearly three-quarters of the investor respondents indicated that they intend to either compare pay ratios across companies/industry sectors, or assess year-on-year changes in the ratio at an individual company or use both of these methodologies” when making voting/investment decisions.
In almost complete contrast, Pearl Meyer’s recent quick poll data show 79% of survey respondents—management and board members, not investors—think the ratio disclosure will be “not at all helpful” to their shareholders and potential investors.
Clearly, multiple camps are not thinking about this coming disclosure in the same way. We have the potential for significant communication conflict. The number will be what it will be for each company and the opportunity to engage lies in the narrative you include in your CD&A.
But who has time to think about drafting the disclosure now? We’re all still mired in the data, right? Well, a good portion of companies are. Preliminary results from our most recent survey indicate that about 50% of respondents have begun their calculations but only 9% of boards have discussed the required CD&A disclosure.
Based on the findings from the ISS survey that appear to run counter to popular opinion in the boardroom and executive offices, we highly recommend that management and the board expedite discussions about how to approach the disclosure and develop shareholder engagement strategies. Even if you don’t have all of the answers yet about who the median employee is, your HR team probably has a good idea about what the ratio will look like and why. Make sure that what you say about your ratio and how you say it is immediately factored into your CD&A development strategy. Take into consideration how it aligns with other parts of your executive compensation narrative. This communication exercise is likely to prove just as important as the calculation itself.
