Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
EXEQUITY
Independent Board and
Management Advisors
To protect the confidential and proprietary information included in thi...
1XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
ISS Burn Rate Caps
■ As part of its analysis of equity compensation p...
2XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
FVA Multiplier
■ A company’s FVA Multiplier depends on its three-year...
3XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
2015 ISS Burn Rate Caps/Industry Benchmarks: S&P 500
GICS Description...
4XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
2015 ISS Burn Rate Caps/Industry Benchmarks:
Russell 3000 (Non-S&P 50...
5XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
Russell 30001 ISS Burn Rate Caps: 2009–2015
1 Russell 3000 (Non-S&P 5...
6XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
2015 S&P 500 vs. 2014 Russell 3000 ISS Burn Rate Caps
0.00%
1.00%
2.0...
7XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
2015 Russell 3000 (Non-S&P 500) vs.
2014 Russell 3000 ISS Burn Rate C...
8XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
ISS Burn Rates/Industry Benchmarks
■ For meetings on or after Februar...
9XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity
About Ed Hauder
Ed Hauder, Senior Advisor, Exequity LLP
■ Ed has cons...
Upcoming SlideShare
Loading in …5
×

ISS Burn Rate Caps: 2009-2015

4,099 views

Published on

This presentation details the ISS burn rate caps for the period 2009 to 2014 and the burn rate industry benchmarks for 2015.

Published in: Business
  • I liked it!.... STARTUPS...Send your pitchdeck to over 5700 of VC's and Angel's with just 1 click. Visit: Angelvisioninvestors.com
       Reply 
    Are you sure you want to  Yes  No
    Your message goes here
  • Be the first to like this

ISS Burn Rate Caps: 2009-2015

  1. 1. EXEQUITY Independent Board and Management Advisors To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties without the approval of Exequity LLP. ISS Burn Rate Caps: 2009–2015 Edward A. Hauder, Senior Advisor March 17, 2015
  2. 2. 1XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity ISS Burn Rate Caps ■ As part of its analysis of equity compensation plan proposals, Institutional Shareholder Services (ISS) analyzes a company’s “burn rate” compared to maximum amounts established by ISS for S&P 500, Russell 3000 (Non-S&P 500), and Non-Russell 3000 Global Industry Classification Standard (GICS) groups  ISS burn rate = (X + Y + Z) / 3, where: ► X = burn rate in last FY = [(options + SARs1 granted during last FY) + (FVAs2 granted during last FY x FVA multiplier)] / weighted average CSO3 during last FY ► Y = burn rate in last FY-1 = [(options + SARs granted during last FY-1) + (FVAs granted during last FY-1 x FVA multiplier)] / weighted average CSO during last FY-1 ► Z = burn rate in last FY-2 = [(options + SARs granted during last FY-2) + (FVAs granted during last FY-2 x FVA multiplier)] / weighted average CSO during last FY-2 ● FVA multiplier is determined by ISS as of a company’s lock-in date (four per year, based on when a company’s shareholder meeting will be held) based on the company’s volatility during the past three years, using the chart set forth on the next slide Note: Performance-based FVAs are included in the year in which the underlying shares are delivered, i.e., in the year earned and paid out, not the year in which the performance period begins. Cash-settled awards (cash-settled RSUs,4 cash-settled SARs, etc.) are not included in the calculation, as long as the company clearly discloses such awards will be paid out in cash and not shares. 1 Stock appreciation rights 2 Full value awards (generally any award other than a stock option or SAR that is settled by the issuance of shares) 3 Common shares outstanding 4 Restricted stock units
  3. 3. 2XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity FVA Multiplier ■ A company’s FVA Multiplier depends on its three-year historic volatility annualized as of the company’s specific ISS lock-in date Annual Stock Price Volatility FVA Multiplier 54.6% and higher 1 FVA = 1.5 option shares 36.1% or higher and less than 54.6% 1 FVA = 2.0 option shares 24.9% or higher and less than 36.1% 1 FVA = 2.5 option shares 16.5% or higher and less than 24.9% 1 FVA = 3.0 option shares 7.9% or higher and less than 16.5% 1 FVA = 3.5 option shares Less than 7.9% 1 FVA = 4.0 option shares Note: ISS Research moved to using a three-year observation period for stock price volatility for purposes of both its shareholder value transfer (SVT) and burn rate tests starting December 1, 2011
  4. 4. 3XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity 2015 ISS Burn Rate Caps/Industry Benchmarks: S&P 500 GICS Description S&P 500 Mean Standard Deviation 2015 Burn Rate Cap1 10 Energy 1.19% 0.56% 2.00%1 15 Materials 1.25% 0.71% 2.00%1 20 Industrials 1.44% 0.69% 2.13% 25 Consumer Discretionary 1.66% 0.84% 2.50% 30 Consumer Staples 1.42% 0.69% 2.11% 35 Health Care 1.99% 0.83% 2.82% 40 Financials 1.79% 1.46% 3.25% 45 Information Technology 3.24% 1.49% 4.73% 50 Telecommunication Services 0.95 0.33% 2.00%1 55 Utilities 0.82% 0.38% 2.00%1 1 Generally, Mean + Standard Deviation, subject to minimum cap of 2% (de minimis allowance) and maximum +/- 2 percentage points relative to prior year burn rate cap for same industry/index group Note: 2015 is the first year that ISS split out the S&P 500 from the Russell 3000 group For 2015, ISS refers to the Burn Rate Caps as “Industry Benchmarks” since theoretically under the new Equity Plan Scorecard Policy a company could exceed its Industry Benchmark burn rate and still receive some points and so no longer represent a maximum acceptable burn rate
  5. 5. 4XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity 2015 ISS Burn Rate Caps/Industry Benchmarks: Russell 3000 (Non-S&P 500) and Non-Russell 3000 GICS Description Russell 3000 (Non-S&P 500) Non-Russell 3000 Mean Standard Deviation 2015 Burn Rate Cap1 Mean Standard Deviation 2015 Burn Rate Cap1 1010 Energy 2.55% 2.48% 5.03% 2.51% 3.72% 6.23% 1510 Materials 1.60% 1.31% 2.91% 3.09% 3.89% 6.98% 2010 Capital Goods 1.93% 1.22% 3.15% 3.54% 3.96% 7.50% 2020 Commercial & Professional Services 2.86% 1.70% 4.56% 3.88% 3.64% 7.52% 2030 Transportation 1.84% 2.07% 3.91% 1.73% 2.14% 3.87% 2510 Automobiles & Components 2.02% 1.35% 3.37% 2.19% 2.02% 4.21% 2520 Consumer Durables & Apparel 2.32% 1.57% 3.89% 2.83% 3.05% 5.88% 2530 Consumer Services 2.58% 1.63% 4.21% 2.71% 3.00% 5.71% 2540 Media 2.65% 2..52% 5.17% 2.70% 2.49% 5.19% 2550 Retailing 2.65% 1.81% 4.46% 3.79% 2.72% 6.51% 3010, 3020, 3030 Consumer Staples 1.73% 1.42% 3.15% 2.36% 2.96% 5.32% 3510 Health Care Equipment & Services 3.28% 1.85% 5.13% 4.56% 3.91% 8.47% 3520 Pharmaceuticals & Biotechnology 3.78% 2.21% 5..99% 4.86% 3.86% 8.72% 4010 Banks 1.67% 1.67% 3.34% 1.20% 1.80% 3.00% 4020 Diversified Financials 4.56% 4.43% 8.99% 2.28% 4.11% 6.39% 4030 Insurance 2.04% 1.80% 3.84% 1.06% 1.68% 2.74% 4040 Real Estate 1.40% 1.31% 2.71% 0.93% 1.44% 2.37% 4510 Software & Services 4.97% 2.91% 7.88% 4.62% 3.70% 8.32% 4520 Technology Hardware & Equipment 3.65% 2.20% 5.85% 4.07% 3.91% 7.98% 4530 Semiconductor Equipment 4.75% 2.15% 6.90% 4.44% 4.26% 8.70% 5010 Telecommunication Services 3.03% 1.51% 4.54% 3.67% 3.66% 7.33% 5510 Utilities 0.84% 0.54% 2.00%1 1.81% 2.21% 4.02% 1 Generally, Mean + Standard Deviation, subject to minimum cap of 2% (de minimis allowance) and maximum +/- 2 percentage points relative to prior year burn rate cap for same industry/index group
  6. 6. 5XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity Russell 30001 ISS Burn Rate Caps: 2009–2015 1 Russell 3000 (Non-S&P 500) for 2015 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 1010 1510 2010 2020 2030 2510 2520 2530 2540 2550 3010, 3020, 3030 3510 3520 4010 4020 4030 4040 4510 4520 4530 5010 5510 MaximumBurnRate GICS ISS Burn Rate Maximums/Industry Benchmarks 2009 2010 2011 2012 2013 2014 2015*
  7. 7. 6XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity 2015 S&P 500 vs. 2014 Russell 3000 ISS Burn Rate Caps 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 1010 1510 2010 2020 2030 2510 2520 2530 2540 2550 3010, 3020, 3030 3510 3520 4010 4020 4030 4040 4510 4520 4530 5010 5510 MaximumBurnRate GICS ISS Burn Rate Maximums/Industry Benchmarks 2014 2015
  8. 8. 7XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity 2015 Russell 3000 (Non-S&P 500) vs. 2014 Russell 3000 ISS Burn Rate Caps 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00% 1010 1510 2010 2020 2030 2510 2520 2530 2540 2550 3010, 3020, 3030 3510 3520 4010 4020 4030 4040 4510 4520 4530 5010 5510 MaximumBurnRate GICS ISS Burn Rate Maximums/Industry Benchmarks 2014 2015
  9. 9. 8XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity ISS Burn Rates/Industry Benchmarks ■ For meetings on or after February 1, 2015, ISS incorporated its burn rate analysis into its Equity Plan Scorecard (EPSC) policy ■ Under the EPSC policy, companies are scored on various aspects of their plan costs, plan features, and grant practices, including burn rate ■ Companies can maximize the points they receive under the EPSC policy’s burn rate analysis by having a burn rate that comes in at or below 50% of their ISS Burn Rate Cap/Industry Benchmark
  10. 10. 9XYZ/ISS Burn Rate Caps: 2009–2015_20150317 Exequity About Ed Hauder Ed Hauder, Senior Advisor, Exequity LLP ■ Ed has consulted with companies in multiple industries on all aspects of executive and director compensation. He focuses on helping companies design compensation programs that assist in achieving their strategic goals and objectives, while at the same time keeping them out of the penalty box with shareholders and the media. Ed also helps companies understand and find practical solutions for technical matters impacting compensation, e.g., financial accounting, securities, tax, and corporate governance issues. His expertise includes ISS compensation modeling and policies, which enabled him to create the Flexible Share Authorization to maximize equity plan flexibility. ■ Ed is a frequent author and speaker and his recent articles have appeared in The Corporate Board, workspan Weekly, BNA’s Executive Compensation Library, and Tax Management Compensation Planning Journal. ■ Ed received a B.A. in International Relations from Juniata College, a J.D., cum laude, from Seattle University School of Law, and an LL.M. (Tax), with honors, from IIT-Chicago-Kent College of Law. Ed’s Contact Information ■ Email: edward.hauder@exqty.com | Office: 847-996-3990 | Cell: 847-406-8150 ■ Exequity’s web site: www.exqty.com ■ Ed’s Equity Compensation Plan Blog: www.EdwardHauder.com ■ Follow Ed on Twitter: www.Twitter.com/EdHauder

×