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06 Sep. 2011 | Comments (0)

There was a snippet of information that caught my eye last week as I was researching the hash tag #corpgov on Twitter: “Equilar terminates agreement with ISS.” While that news isn’t earth-shattering, it’s what’s not in the press release that this tweet was linked to that could have deep implications for next year’s proxy season. What I’m talking about specifically is executive compensation data. For those not familiar with the Equilar name, it is a California-based provider of total executive compensation information for public companies. So why is a termination of an agreement between Equilar and the proxy advisory firm Institutional Shareholder Services mean anything to corporate secretaries of public companies or others in the corporate governance world? For one thing, the announcement came about the same time ISS announced its new executive compensation database for its clients. Previous to that announcement, Equilar had provided total executive compensation information to ISS since 2003. As part of outgrowth of its purchase by MSCI last year, ISS has now formed ISS Corporate Services (ICS). Apparently, ICS is the new entity in charge of the executive compensation database product. Another point to take into account is that the 2012 proxy season will be the second under mandatory executive compensation advisory votes (Say on Pay). While a large majority of Say on Pay votes were positive (nearly 92 percent), many directors of public companies were fearful of the recommendations from ISS regarding their company’s pay package.  And of the main reasons for that fear was that not only was it believed that large shareholders would blindly follow such recommendations, but that a lot of the information such advisory firms like ISS had was quite inaccurate. So the point here is that with ISS cutting its agreement with Equilar and basically bringing the executive compensation data collecting duties in-house, one has to wonder about the quality of that information since the supply chain is changing. No matter the reason for the end of the relationship, it’s pretty obvious Equilar is not happy with ISS creating its own executive compensation database to its clients by cutting out the middle man. You can ascertain that by reading between the lines of the Aug. 22 statement from Equilar: “Since 2003, Equilar has provided a data feed of executive compensation data directly to ISS. Effective immediately, Equilar has ceased supplying data to ISS due to unresolved intellectual property rights issues.” The big question here is whether it is smart to cut out a middle man when it comes to disseminating the total executive compensation packages of the top CEOs of U.S. companies. In my June 21 post (Investors May be More Equipped with Exec. Comp., Pension Data for Proxy Season 2012), I pointed out that ISS addressed the question of accuracy – a criticism by many directors about the proxy advisory firm’s recommendations – as it was announcing its new executive compensation database. In the ISS announcement of its new executive compensation database back in June, Martha Carter, the head of global research, pointed to the importance of providing its own database. “As the industry leader, quality is the cornerstone of our research,” she said.  “By having our own data collection capability, we are in a better position to ensure quality, reliability and consistency in the data driving our recommendations, particularly around executive pay.” So while ISS believes it is a good for information integrity to provide its own executive compensation information by cutting out the middle man, the corporate secretaries of many of these public companies as well as their directors have to wonder whether they will be affected if that information is indeed inaccurate. Should make for a fun proxy season next year.
  • About the Author:Gary Larkin

    Gary Larkin

    Gary Larkin is a research associate in the corporate leadership department at The Conference Board in New York. His research focuses on corporate governance, including succession planning, board compo…

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