1. ISS Burn Rate Caps: 2009–2012
Edward A. Hauder, Senior Advisor
EXEQUITY January 3, 2012
Independent Board and
Management Advisors
To protect the confidential and proprietary information included in this material, it may not be disclosed or provided to any third parties
without the approval of Exequity LLP.
2. ISS Burn Rate Caps
As part of its analysis of equity compensation plan proposals, Institutional Shareholder Services (ISS)
analyzes a company’s “burn rate” compared to maximum amounts established by ISS for Russell
3000 and non-Russell 3000 GICS groups.
■ ISS Burn Rate = (X + Y + Z) / 3, where:
X = Burn Rate in Last FY = [(options + SARs1 granted during Last FY) + (FVAs2 granted during
Last FY x FVA Multiplier)] / Weighted Average CSO3 during Last FY
Y = Burn Rate in Last FY-1 = [(options + SARs granted during Last FY-1) + (FVAs granted
during Last FY-1 x FVA Multiplier)] / Weighted Average CSO during Last FY-1
Z = Burn Rate in Last FY-2 = [(options + SARs granted during Last FY-2) + (FVAs granted
during Last FY-2 x FVA Multiplier)] / Weighted Average CSO during Last FY-2
► FVA Multiplier is determined by ISS as of a company’s lock-in date (four per year, based
on when a company’s shareholder meeting will be held) based on the company’s volatility
during the past 3 years, using the chart set forth on the next slide
1 Stock Appreciation Right
2 Full Value Award (generally any award other than a stock option or SAR that is settled by the issuance of shares)
3 Common Shares Outstanding
Note: Performance-based full value awards are included in the year in which the underlying shares are
delivered, i.e., in the year earned and paid out, not the year in which the performance period begins.
Cash-Settled Awards (Cash-Settled RSUs, Cash-Settled SARs) are not included in the calculation, so
long as the company clearly discloses such awards will be paid out in cash and not shares.
ISS Burn Rate Caps 09-12_20120103 1 Exequity
3. FVA Multiplier
A company’s FVA Multiplier depends on its 3-year historic volatility annualized as of the company’s
specific ISS Lock-In Date.
Annual Stock Price Volatility FVA Multiplier
54.6% and higher 1 FVA = 1.5 option shares
36.1% or higher and less than 54.6% 1 FVA = 2.0 option shares
24.9% or higher and less than 36.1% 1 FVA = 2.5 option shares
16.5% or higher and less than 24.9% 1 FVA = 3.0 option shares
7.9% or higher and less than 16.5% 1 FVA = 3.5 option shares
Less than 7.9% 1 FVA = 4.0 option shares
Note: ISS Research moved to using a 3-year observation period for stock price volatility for
purposes of both its Shareholder Value Transfer (SVT) and Burn Rate tests as of 12/1/2011.
ISS Burn Rate Caps 09-12_20120103 2 Exequity
4. ISS Burn Rate Caps for 2012
Note: Highlighted GICS Groups are those Russell 3000 groups that had their 2012 Burn Rate Caps limited by the two percentage point governor for
increases and decreases.
ISS Burn Rate Caps 09-12_20120103 3 Exequity
6. Excessive ISS Burn Rates
■ If a company’s ISS Burn Rate exceeds its GICS group ISS Burn Rate Cap, ISS will recommend
AGAINST the company’s equity compensation plan proposal.
■ Companies that exceed their allowable burn rate cap can avoid a negative vote recommendation
from ISS by publicly committing (in a public filing) to maintain its burn rate over the next three fiscal
years of equal to or less than its GICS group ISS Burn Rate Cap, i.e., the industry mean plus one
standard deviation as calculated by ISS for the year of the equity compensation plan proposal.
ISS Burn Rate Caps 09-12_20120103 5 Exequity
7. About Edward Hauder
Ed Hauder, Senior Advisor, Exequity LLP
■ Ed has consulted with hundreds of companies in multiple industries on all aspects of executive and
director compensation. He focuses on helping companies design compensation programs that
assist them achieve their strategic goals and objectives, while at the same time keeping them out
of the penalty box with shareholders and the media. Ed also helps companies understand and find
practical solutions for technical matters impacting compensation, e.g., financial accounting,
securities, tax, and corporate governance issues. His expertise includes ISS compensation
modeling and policies, which enabled him to create the Flexible Share Authorization to maximize
equity plan flexibility.
■ Ed is a frequent author and speaker and his recent articles have appeared in The Corporate
Board, workspan Weekly, BNA’s Executive Compensation Library, and Tax Management
Compensation Planning Journal.
■ Ed received a B.A. in International Relations from Juniata College, a J.D., cum laude, from Seattle
University School of Law, and an LL.M. (Tax), with honors, from IIT-Chicago-Kent College of Law.
Ed’s Contact Information
Email: edward.hauder@exqty.com | Office: 847-996-3990 / Cell: 847-406-8150
Exequity’s web site: www.exqty.com
Ed’s Equity Compensation Plan Blog: www.EdwardHauder.com
Track the latest Say on Pay Developments at: www.Say-on-Pay.com
Follow Ed on Twitter: www.Twitter.com/EdHauder
ISS Burn Rate Caps 09-12_20120103 6 Exequity
![ISS Burn Rate Caps
As part of its analysis of equity compensation plan proposals, Institutional Shareholder Services (ISS)
analyzes a company’s “burn rate” compared to maximum amounts established by ISS for Russell
3000 and non-Russell 3000 GICS groups.
■ ISS Burn Rate = (X + Y + Z) / 3, where:
X = Burn Rate in Last FY = [(options + SARs1 granted during Last FY) + (FVAs2 granted during
Last FY x FVA Multiplier)] / Weighted Average CSO3 during Last FY
Y = Burn Rate in Last FY-1 = [(options + SARs granted during Last FY-1) + (FVAs granted
during Last FY-1 x FVA Multiplier)] / Weighted Average CSO during Last FY-1
Z = Burn Rate in Last FY-2 = [(options + SARs granted during Last FY-2) + (FVAs granted
during Last FY-2 x FVA Multiplier)] / Weighted Average CSO during Last FY-2
► FVA Multiplier is determined by ISS as of a company’s lock-in date (four per year, based
on when a company’s shareholder meeting will be held) based on the company’s volatility
during the past 3 years, using the chart set forth on the next slide
1 Stock Appreciation Right
2 Full Value Award (generally any award other than a stock option or SAR that is settled by the issuance of shares)
3 Common Shares Outstanding
Note: Performance-based full value awards are included in the year in which the underlying shares are
delivered, i.e., in the year earned and paid out, not the year in which the performance period begins.
Cash-Settled Awards (Cash-Settled RSUs, Cash-Settled SARs) are not included in the calculation, so
long as the company clearly discloses such awards will be paid out in cash and not shares.
ISS Burn Rate Caps 09-12_20120103 1 Exequity](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)