Equilar, the leading provider of corporate leadership data solutions,announced its partnership with Equity Methods, a leader in equity compensation solutions, to help human resources, finance and legal teams address new disclosure requirements for Pay Versus Performance. As part of the partnership, Equilar and Equity Methods have developed a Monte Carlo Simulator within the Equilar Insight platform to allow companies to model and predict various outcomes related to their executive pay and performance alignment. The new tools will be made available to clients on December 16, ahead of the upcoming proxy season.
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On August 25, 2022, the United States Securities and Exchange Commission (SEC) adopted Pay Versus Performance rules, following several rounds of comments and proposals. The new rules require public companies to disclose information reflecting the relationship between compensation actually paid (CAP) to a company’s named executive officers (NEOs) and the company’s financial performance.
For most public companies that grant TSR-based performance awards to executives, valuing such grants as part of the required CAP calculation will necessitate multiple Monte Carlo simulations each year. The new Monte Carlo Simulator and suite of Equilar Pay for Performance tools provide the autonomy to model an infinite number of simulations for relative TSR-based award valuations and assess the strength of specific performance metrics.
“Most companies lack the technical resources and bandwidth to build a Monte Carlo simulation,” said David Chun, CEO and Founder of Equilar. “We’re excited to combine our industry-leading compensation solutions with Equity Methods’ state-of-the-art modeling capabilities to empower our clients as they address the new SEC Pay Versus Performance requirements.”
“Monte Carlo simulation is one of the most complicated aspects of producing the core Pay Versus Performance disclosure table,” said Takis Makridis, President and CEO of Equity Methods. “With the Monte Carlo Simulator, Equilar users can leverage Equity Methods-designed models to get rapid estimates of relative TSR award values as part of their pro forma modeling and planning processes.”
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Equilar has also enhanced its current Pay for Performance suite in light of the new SEC requirements. For more than 10 years, Equilar’s Pay for Performance tools have helped clients evaluate pay and performance alignment using several pay definitions and evaluation periods to model investor expectations, leading to five citations in the final SEC ruling. To help clients prepare their disclosures, the Equilar platform now includes:
- Metric Identification: Correlation analysis between TSR, net income and 100+ other metrics
- TSR Calculation: Added market cap weighted TSR calculation
- Compensation Actually Paid (CAP): Black-Scholes and Binomial option valuation to facilitate the CAP calculation
- Absolute Alignment: Alignment models to assist graphical and narrative disclosure
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