Public companies should immediately review their peer group and Global Industry Classification Standard (“GICS”) codes, for purposes of executive compensation in light of the new Institutional Shareholder Services (“ISS”) guidance. If the peer group your company plans to use in the upcoming proxy for assessing and determining executive compensation is different than the peer group used in your company’s last proxy, you should contact ISS before December 21 with your new peer group list.

It is important that the peer group you use for your executive compensation determinations is the same group that ISS is using when analyzing your information for those decisions, because if the data is different, ISS’s analysis may not properly match up with your executive compensation decisions and, as a result, ISS may recommend a “withhold” or “against” vote for your compensation committee members.

ISS has provided information regarding its methodology for selecting a company’s peer group for purposes of analyzing executive compensation (please see our previous January 23, 2012 blog for additional details regarding ISS’s analysis of peer groups in determining executive compensation) and has released FAQs to address questions on the subject. Here is a link to the FAQs:

The FAQs provide information on how ISS will select between 14 and 24 peers based on the company’s GICS code, as well as the GICS code of the peers named in the subject company’s proxy statement. Subject to size constraints based on revenues or assets and market value, ISS describes the order in which peers will be selected from the potential universe of companies that share the same GICS code. Other questions address the use of size parameters, essential to the selection process, the GICS industry groups (financial services) where assets will be used instead of revenue, and what occurs if a company discloses their intent to use more than one peer group.

The basic principles of the new methodology are that peers should come from similar industries and be of similar size. If the standard methodology fails to yield the minimum number of acceptable peers, ISS has stated that it will supplement the peer group to reach the minimum. When the standard methodology appears to have produced inappropriate peers, ISS also noted that it will apply manual judgments to compile a peer group.

What Should You Do Now?

By December 21, companies should inform ISS of any changes to their peer groups from their 2012 disclosures, as a source of input into the ISS peer group selection. Here is a link to the input form: ISS has noted that the peer group provided to them should mirror the peer group that will appear in the company’s 2013 proxy statement.

What if you have questions?

For any questions or more information on these or any related matters, please contact any attorney in the firm’s corporate practice group. A list of such attorneys can be found by clicking "Lawyers" on this page.

Greg Schick (415-774-2988,, John Tishler (858-720-8943,, Carrie Darling (650-815-2657, and Louis Lehot (650-815-2640, participated in drafting this posting.


This update has been prepared by Sheppard, Mullin, Richter & Hampton LLP for informational purposes only and does not constitute advertising, a solicitation, or legal advice, is not promised or guaranteed to be correct or complete and may or may not reflect the most current legal developments. Sheppard, Mullin, Richter & Hampton LLP expressly disclaims all liability in respect to actions taken or not taken based on the contents of this update.