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Corporate Governance Risk - Compensation Modeling - Compensation Advisory -

Compensation Advisory Solutions

Turnkey Solutions for Compensation Modeling

Executive and director compensation has become a major corporate governance concern for investors worldwide. Increased scrutiny due to the perception that executive pay is misaligned with company performance, regulatory requirements for improved disclosure and greater shareholder activism are placing compensation in the spotlight for many companies.

However, equity-based compensation continues to be the preferred way to attract and retain talent, as well as to tightly align pay with company performance. The challenge for compensation professionals and committee members is how to strike the proper balance. Therefore, modeling the cost impact of equity-based compensation is a critical element in designing any plan.

Risk Metrics Group offers compensation advisory services for corporate compensation professionals who would like hands-on assistance as they model these critical plans. The corporate solutions team works interactively with you, asking questions, raising concerns and providing input throughout the process.

Our compensation advisory services are centered around Risk Metrics Group's binomial option pricing model and Shareholder Value Transfer (SVT) methodology. We have used the binomial method to value stock-based incentive plans since 1996, well before the Financial Accounting Standards Board's March 2004 recommendations on option valuation techniques. More than 70 percent of large institutions surveyed now use this option-pricing model to assess plan cost when analyzing compensation issues.

The compensation advisory service includes a baseline valuation run to determine the SVT cost of existing equity plans and overhang. Then the corporate solutions team will prepare a series of sensitivity analyses to determine the impact of various plan designs and award types on the SVT cost of a potential new share request.

Benefits of Compensation Advisory Solutions

In addition to helping you model the SVT of your equity plans, the corporate solutions team will:

Provide input on shareholder expectations relative to burn rate, pay for performance, equity plan design, and qualitative factors
Work with you to review multiple versions of the plan document as needed to help you determine an optimal plan design.
Prepare a custom presentation for you to share with your senior management team and board of directors.
Review a draft of the proxy disclosure relating to your equity plan to ensure all key plan provisions are highlighted and best practices are incorporated

In accordance with our Business Practices, this solution is delivered by ISS Corporate Services, Inc. (ICS), a wholly owned subsidiary of RiskMetrics Group, Inc.