ISS Changes Methodology for Calculating Relative Degree of Alignment
ISS (International Shareholder Services Inc.) has released its 2014 U.S. Policy updates, with a modification to the executive compensation section, changing the methodology of how they calculate the Relative Degree of Alignment (RDA).
International Shareholder Services Inc. updated how it calculates the Relative Degree of Alignment (RDA). RDA measures CEO pay and performance against peer companies. The 2014 policy now compares 3-year total shareholder return (TSR) rank to 3-year total CEO pay rank within the same peer group. The update aims to make pay scoring clearer and more stable.
Old vs New RDA Calculation Method
- Old method: Used 1-year and 3-year TSR vs pay ranks, weighted 40% and 60%.
- New method: Uses only 3-year TSR vs pay rank for a smoother, simpler score.
The core comparison remains the same. The biggest change is removing the 1-year scoring weight.
Why This Update Matters
The update supports a growing shift toward long-term rewards. It reduces focus on short results. It encourages companies to align CEO pay with durable peer performance. Many experts say steady metrics build better investor trust. Long-term incentives also lower pay volatility. Companies that reward lasting wins show stronger governance signals.
Agreement and Effective Date
The 2014 U.S. policy changes were approved on November 21, 2013. They applied to shareholder meetings from February 1, 2014 onward. This includes proxy review, pay alignment scoring, and investor vote guidance. The rules continue to influence executive compensation debates linked to shareholder value.
