ISS Changes Methodology for Calculating Relative Degree of Alignment

ISS (International Shareholder Services Inc.) has released its 2014 U.S. Policy updates, with a modification to the executive compensation section, changing the methodology of how they calculate the Relative Degree of Alignment (RDA). The RDA evaluates executive pay and performance relative to peers. Under the revised methodology, ISS will calculate the difference between the company’s total shareholder return rank and the CEO’s total pay rank within a peer group, as measured over a three-year period.

Previously, ISS would take the difference between the company’s total shareholder return rank and the CEO’s total pay rank within a peer group, as measured over one-year and three-year periods (weighted 40% / 60%). The new methodology serves to simplify and smooth the process. This shouldn’t make too much of a difference for executives, but does continue the overall trend of executives being rewarded for long-term successes over short-term successes.

The 2014 Updates were agreed on November 21, 2013 and have been effective for shareholder meetings on or after February 1, 2014.