2012, 4:46 PM ET
J.C. Penney, ISS
Tussle Over Compensation
J.C. Penney’s board of
directors fought back against governance firm Institutional Shareholder
Services’ call to vote against two of its compensation proposals.
The back and forth began
Monday, when ISS published a note saying the peer group Penney uses to
determine compensation levels for top executives was “aspirational,” as it
included companies like Nike, Walt Disney, Target and PepsiCo, which have
much higher revenues than Penney. Penney fired back in a Tuesday
filing that its peer group “reflects the market within which we compete
for talent,” and noted that its new president came from Target, its new
chief technology officer came from PepsiCo and a new executive vice
president of strategy worked at both Disney and Nike before coming to
firm ISS recommended J.C. Penney shareholders vote against two
compensation proposals at its annual meeting.
ISS selected its own peer
group for Penney based on companies whose sizes were more similar, including
four automobile-related companies in the 14-company group. Penney said that
“simply makes no sense,” and shows that ISS’s methodology is flawed.
An ISS spokesman declined to
respond to Penney’s criticism. It also recommended shareholders vote against
Penney compensation in last year’s say-on-pay vote, but 72% of votes were
cast in favor of the pay packages, according to Penney.
With the recommendations,
Penney becomes the latest company to suffer the disapproval of ISS over its
peer group. The firm often uses different methodologies than companies when
determining the appropriate peers by which to measure the compensation of
ISS said holders should vote
against Penney’s 2012 long-term incentive compensation pay, plus vote
against the current compensation of executives in the non-binding advisory
vote known as say-on-pay. Most companies now hold say-on-pay advisory votes
as required under certain regulations in the Dodd-Frank Act that went into
effect in January 2011, and ISS said holders should say no on pay because of
the “excessive” retirement package given to former Penney CEO Myron Ullman.
Penney said in the filing that, given the management changes last year, “its
executive compensation decisions in 2011 were necessary to ensure that the
company and its leadership team could hit the ground running in 2012.”
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