On January 27, 2014 ISS released their updated QuickScore document. QuickScore is intended to help shareholders identify governance risk in the companies they do, or may, invest in. Let’s start with the name, QuickScore. This questionnaire is anything but quick. There are currently 329 questions covering four “pillars” of governance: Board Structure, Shareholder Rights, Compensation / Remuneration and Audit. Many of the questions apply only to a specific market (ex. United States, broken into subgroups for Russell 3000 and S&P 500) or region (ex. Asia Pacific, which apparently only includes Singapore and Hong Kong.) That’s probably enough for you QuickScore neophytes to have already lost interest. The full document is 76 pages and I will try and cover the high notes in the remaining 250 words of this article. The fact is that governance isn’t easy and it certainly isn't quick.
Seemingly the biggest change is a move to a more varied weighting system to determine the scores. This is intended to remove some of the arbitrary nature of scoring that has been a past complaint. Of course, weighting adds new questions regarding exactly how the weighting is determined and applied.
This newest version includes only two new compensation-related questions for companies based in the US.
Question 328 looks at past Say on Pay support as related to an industry index. This is another attempt to view Say on Pay as “Shareholders Kind of Implied Something About Say on Pay.” Say on Pay is often less a vote on compensation than it is on other corporate issues. A 70% "for" vote in a prior year is a passing vote, there is always a question on whether the other 30% were voting on pay or some other issue. A more nuanced approach to this specific question might be to put this under a non-compensation pillar.
Question 329 looks at the alignment between the company's annualized three-year pay percentile rank relative to peers and its three-year annualized TSR to the same peers. The prior version of QuickScore already asked this question for one-year alignment and for a cumulative three-year rank. This appears to be an effort to smooth some of the potential scoring volatility. In fact, the older questions (226 and 227) will still exist for informational purposes and have been given a weighting factor of zero.
So if you did well on last year’s QuickScore and your compensation hasn't dramatically changed you should be fine again this year. If you didn't do well last year, the updated scoring system isn't going to help you. If you would like to download the full (and super exciting) document you can do so here.
Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, “GEOnomics 2011” and “Equity Alternatives.” Dan is the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay.