Traveler’s Argues Against ISS’s Recommendation
Annual Meeting May 25, 2022
Total compensation for Traveler’s Chairman and CEO Alan Schnitzer was $19,853,697 in 2021. ISS has recommended that shareholders vote against the pay package at the company’s upcoming annual meeting.
In a supplemental filing the company explained, “ISS has expressed concerns regarding the structure of our compensation program and our pay-for-performance alignment, noting in particular Travelers’ total shareholder return (TSR) as compared to both the S&P 500 and the ISS-defined peer group, in each case as of December 31, 2021.” The company then notes, “Because of the inherent volatility of the markets and the impact of short-term trading on a particular stock, a view of performance primarily based on a stock price on a single, specific date can provide an incomplete picture.”
There is a kind of self-evident truth to that, yet the same can be said of any date arbitrarily chosen, yet TSR is broadly used and it always has a beginning and end date. The FYE is a legitimate and consistent point in time to measure performance. Because most companies do use FYE of December 31, it also allows comparisons. Choosing a date such as the date ISS issues a report – a suggestion the company actually makes – would be incredibly confusing.
ISS also objected to compensation committee discretion. The company makes a bold statement in its response: “The Compensation Committee believes that a formulaic approach to the determination of incentive compensation, particularly in the property and casualty insurance industry, could result in unintended consequences and is not an appropriate substitute for the Compensation Committee’s informed and thorough deliberation and the application of its reasoned business judgment.” This is a major departure from what shareholders generally believe: that “reasoned business judgment” should be involved in the setting of metrics, not making arbitrary choices at the conclusion of a performance period.
The company writes, “The structure of Travelers’ compensation program has been stable over time and is unchanged from prior years.” It is true that it is not significantly change from prior years. However, it is worth noting that the CEO’s salary increased by 30 percent between 2019 and 2020, causing at least one shareholder to vote against the plan last year.
Traveler’s notes that ISS has never recommended against its pay packages before. The company has, however, been on As You Sow’s overpaid list in three different years.