Understanding Risk Metric Compensation GRId

by Adam O. Emmerich, Wachtell Lipton Rosen & Katz, for the Harvard Law School Forum on Corporate Governance and Financial Regulation, on Tuesday June 1, 2010

The Compensation GRId questions and scoring generally reflect the substantive positions in RiskMetrics’ corporate governance policies and proxy voting guidelines, but in some cases are more punitive. For example, the proxy voting guidelines penalize excise tax gross-ups only in new or materially amended agreements, but the Compensation GRId deducts even for existing agreements with gross-ups. More significantly, the rigid scoring system by its nature codifies the level of emphasis on particular issues. While we do not think the one-size-fits-all GRId approach provides a useful picture of governance practices, most public companies will, given the prominence of RiskMetrics, find it useful to familiarize themselves with the GRId guidelines and identify areas where points can be scored with little risk of substantive harm. For example, in a number of cases addressing an issue in the annual proxy statement may increase a company’s score.

For U.S. companies, the overall Compensation GRId score is based on three sub-scores: short-term compensation (weighted only 3%), long-term compensation (weighted 32%), and “other” (weighted 65%). The GRId instructions provide individual question weightings within the subcategories. Notably, severance provisions account for 35% of the “other” score, thus representing almost 25% of the total Compensation GRId score….(continue reading)


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