In this Viewpoint, the second of our 2024 SOP series, we explore the trends that may have led ISS to recommend against SOP at a historically low rate.
Thousands of companies, including more than 70% of the S&P 500 companies, grant performance stock units (PSUs) with relative total shareholder return (TSR) or stock price performance-vesting conditions. These incentives can be very motivational, help align management rewards with shareholder returns, and are strongly favored by some investors and proxy advisors.
In 2023, Pay Governance research concluded that the information afforded by the new pay versus performance (PVP) disclosures could be reasonably used to assess the alignment of pay and performance, using Compensation Actually Paid (CAP) and relative total shareholder return (TSR) (see Viewpoint Utilizing Compensation Actually Paid to Evaluate Pay and Performance).
In recent years, global companies have grappled with defining a baseline for environmental metrics, establishing the processes and controls to measure and report progress toward objectives, and setting the goals of ambitious environmental performance metrics (especially if environmental performance metrics are used in executive incentive arrangements). Institutional investors have also been increasingly seeking ways to ensure that the companies in which they invest are actively working towards a sustainable future.
One of the more complex issues when measuring performance for incentive plan purposes is how to consider the effect of mergers, acquisitions, dispositions, and the related transaction costs (M&A activity) on financial performance during the performance period.
The reporting of "non-GAAP" (Generally Accepted Accounting Principles) financial metrics is a common practice among companies.
