Marc starts off by telling us what he really thinks about proxy advisory firm ISS:
On Monday, Staples, Inc will try to win its “Say-on-Pay” vote with ISS recommending against approval the executive compensation plan. ISS made its recommendation based on its usual arbitrary, micro-managing concerns which are not the subject of this post.
He goes on, however, to explain what's wrong with "at risk" pay schemes:
Among public companies, having 80% to 90% of target total executive pay derived from “at-risk” compensation, i.e., variable pay such as bonuses, has become the norm. Thus, even if the bonus plan is perfectly designed to pay for performance, or, I should say, especially if it is so designed, a company is guaranteed to eventually encounter management retention problems. After a couple years of poor performance–which can happen despite good management–key employees will be getting only a fraction of what they can earn elsewhere, and will get restless. In fact, the only way to avoid retention problems with such a skewed compensation structure is to fudge on “performance-based” awards when things are bad. That is what got Staples (and many other companies) into trouble.
It's an excellent analysis.