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ISS Peer Group Projection Case Study + -

About the Client

The Company is in the business of exploration, development, and production of onshore domestic oil and natural gas, with specific emphasis on natural gas. As with many natural gas-dominant companies, depressed natural gas prices are having a negative effect on earnings, resulting in negative TSR. In the previous year, this resulted in a “no vote” recommendation from ISS, and the passing of “Say-on-Pay” by a slim margin.

Project Description

The institution of “Say-on-Pay” along with the increasing influence of proxy advisory firms, such as Institutional Shareholder Services (ISS), over the votes of investors, necessitates additional analysis of compensation programs and attempts to preemptively forecast the recommendations of these firms. Recognizing the need for assistance ahead of the ISS recommendation, the Compensation Committee asked NFP Compensation Consulting (NFPCC) to conduct an analysis, utilizing ISS’ methodology, to project the probable peer group ISS would utilize in their pay-for-performance analysis. NFPCC conducted the ISS peer projection analysis utilizing ISS’ disclosed methodology. The six digit GICS code peers were identified and filtered by revenue and market cap (based on ISS parameters). Next, companies were filtered out until a peer group consisting of 14 to 24 peers remained, within which our client was close to, if not at, the median of both revenue and market cap. The results of the analysis displayed the flawed methodology ISS employs, as the peer group consisted of few companies which were not operationally similar to our client.

NFPCC then utilized this peer group to analyze each of the factors ISS reviews in its pay-for-performance analysis and determined the Company would likely receive a “no” recommendation the next year, regardless of the substantial steps taken to improve upon their score from the previous year.

Benefit To Client

Prior to this analysis, NFPCC aided the Company in determining the appropriate peer group for analyzing compensation versus the competitive market. The Compensation Committee expected for this peer group to be relatively similar to the peer group ISS would determine a few months later. As we explained to the Committee, and which was later proven through the projection analysis, the methodology utilized by ISS does not provide an accurate reflection of companies with which our client competes with either for human capital or operationally.

Based on NFPCC’s findings, we were able to forecast ISS’ recommendation to shareholders (three months later ISS issued a “no” recommendation) and the Company was able to proactively address potential shareholder concerns through the proxy statement and phone calls with major investor groups.

Peer Group Analysis & Design Case Study + -

About the Company

The company, along with its related subsidiaries, is in the business of offshore drilling and the completion of exploratory and developmental oil and gas wells.

Project Type

Peer group design

Project Description

The company had grown significantly over the past couple of years but their peer companies had not, therefore the Compensation Committee and management determined that a new peer analysis was needed in order to establish a new peer group for the company.

The Committee asked NFP Compensation Consulting (NFPCC) to complete a peer analysis to determine a new competitive peer group for the company for compensation comparison purposes.

Benefit To Client

The NFPCC analysis included market best practices for selecting a new peer group: 1) work closely with the Committee as an outside independent consultant taking into consideration management’s recommendations, 2) follow consistent methodology and process when selecting peers (identify key factors such as industry, revenue, market capitalization and assets) and establish appropriate parameters and tolerances, and 2) include at least 10 but not more than 20 peer companies to minimize the impact of outliers.

NFPCC’s peer analysis results reflected that some direct competitors are actually close peer comparators to the company that weren’t identified or used in the last peer group. NFPCC also took a broader industry look and found peer comparators that weren’t direct competitors but were good peer matches based on revenue size, market capitalization and assets. NFPCC recommended a peer group to the Committee and management that was designed to: 1) position the Committee and company to attract and retain executive level talent, and 2) compete for talent with larger companies in the industry below the executive level.

Publicly Traded Services Company Case Study + -

About the Company

The company provides and manages government sponsored social services and non-emergency transportation services. Project Description: The company has a limited number of shares available to grant to executives and is getting unfavorable resistance from Institutional Shareholder Services (ISS) in acquiring more shares.

The Compensation Committee has asked that NFP Compensation Consulting (NFPCC) make recommendations to the company on how to combat and address the shortage of shares available to grant.

Project Description

Long-term incentive alternatives in light of not having enough shares to grant to executives.

The company has a limited number of shares available to grant to executives and is getting unfavorable resistance from Institutional Shareholder Services (ISS) in acquiring more shares.

The Compensation Committee has asked that NFP’s compensation consultants make recommendations to the company on how to combat and address the shortage of shares available to grant.

Benefit To Client

NFPCC provided recommendations to the Committee and management to help alleviate the problem of not having enough shares available to grant to executives in light of ISS’ unfavorable opinion of the company’s market practices. NFPCC recommended the Committee consider moving the executive equity grants closer to market competitive levels or the market midpoint, but in doing so, would use more shares than the company had available to grant. NFPCC recommended to: 1) provide a portion of the CEO’s LTI award in cash or restricted cash (vesting over a 2 to 3 year period) to possibly purchase company shares on the open market, 2) provide a portion or all of the other executive equity awards in restricted stock units (cash settled), 3) reduce the LTI eligibility to other employees (this would free up shares but may be perceived as the wrong message to key employees), and 4) provide some portion of the LTI award in performance share units (cash settled) that vest upon meeting stated performance goals such as TSR, ROE and/or EBITDA.

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