referenced report that accompanied this letter, click
"Jon Lukomnik" <Jon@irrcinstitute.org>
Wed, 06 May 2015
File Number S7-07-15
To the SEC
Commissioners and SEC Staff:
I write with regard to the proposed "pay for performance" rule.
The Investor Responsibility Research Center Institute (IRRCIi) is a
not-for-profit research organization which originates, commissions and
disseminates objective research of interest to investors about capital
market, corporate governance and sustainability issues.
We are fiercely non-advocacy. For that reason we take no position on
the proposed rule. However, we have recently published research which
we believe can help inform the Commission in its deliberations on the
rule. "The Alignment Gap Between Creating Value, Performance
Measurement, and Long Term Incentive Design" was authored by
Organizational Capital Partners It has received much attention in the
field for its analysis of the relationship between economic value
creation and executive compensation, as well as the findings.
Among the issues analyzed by the report which would seem directly
relevant to the proposed rule are:
- Performance metrics, including total shareholder return, relative
total shareholder return, economic profit, return on invested capital
- Performance measurement periods
Among the questions the report may engender with relation to the
proposed rule are
- Is total shareholder return the appropriate metric and/or whether it
should be supplemented with operating metric(s)?
- Is the proposed measurement period -- one-year TSR over each of five
years -- appropriate given that the delivered pay may have been
triggered and calculated based a rolling three-year three year or
longer performance period for most long-term incentive plans?
A full copy of the report is enclosed. Both I and the authors of the
study would welcome any questions and are available should SEC staff
desire any further information.