DEFA14A: Evercore Defends Equity Plan Amid ISS Opposition, Cites Growth Strategy and Shareholder Alignment

Evercore is urging shareholders to support its equity incentive plan proposal, despite ISS recommending against it, arguing that the plan is crucial for its growth strategy and aligns employee and shareholder interests.

Summary

• Evercore is seeking shareholder support for Proposal No. 4, which aims to increase the number of shares available under its equity incentive plan by 6.0 million shares.
• The company argues that these additional shares are necessary to continue providing equity-based incentive compensation, which aligns the interests of employees and stockholders, and to recruit and retain talented professionals.
• ISS has recommended against the proposal, citing concerns about potential dilution, but Evercore believes that ISS's quantitative tests are flawed when applied to its business model and compensation practices.
• Evercore highlights that its equity compensation program is broad-based, with over 90% of equity awards granted to non-executive officers in the past three years.
• The company also emphasizes its share repurchase program, which has resulted in a negative net burn rate of -3.5% over the last three years, offsetting the dilutive effect of equity grants.
• Evercore's 5-year total stockholder return as of December 31, 2023, was 172%, outperforming its peers, the S&P 500, and the S&P 500 Financials.
• If the proposal fails, Evercore may have to replace equity compensation with cash, reduce the proportion of employees receiving equity, or reduce overall employee compensation, all of which the Board believes would be detrimental to shareholder value.
• Evercore believes that ISS fails to compare it to an appropriate peer group and refuses to adjust its analysis for its anti-dilutive practices.

Sentiment

Score: 6

Explanation: The sentiment is neutral to slightly positive. While Evercore faces opposition from ISS, it defends its equity plan with strong arguments about growth strategy, shareholder alignment, and a track record of outperformance. The company's proactive communication and emphasis on its unique business model suggest confidence, but the ISS opposition introduces uncertainty.

Positives

• Evercore's 5-year total stockholder return as of December 31, 2023, was 172%, outperforming its peers, the S&P 500, and the S&P 500 Financials.
• The company has a negative net burn rate of -3.5% over the last three years due to its share repurchase program, offsetting dilution.
• Over 90% of equity awards have been granted to non-executive officers in the past three years, demonstrating a broad-based equity compensation program.
• ISS supports Evercore's say-on-pay proposal and overall compensation program, acknowledging the alignment of pay and performance.
• Shareholders have supported each of Evercore's three prior equity plan proposals.

Negatives

• ISS has recommended against Evercore's equity plan proposal, citing concerns about potential dilution.
• ISS's quantitative tests are considered flawed when applied to Evercore's business model and compensation practices.
• If the proposal fails, Evercore may have to replace equity compensation with cash, reduce the proportion of employees receiving equity, or reduce overall employee compensation.

Risks

• Failure to secure shareholder approval for the equity incentive plan could limit Evercore's ability to attract, retain, and motivate employees.
• The company may face increased competition for top talent if it cannot offer competitive equity compensation packages.
• Potential negative impact on shareholder value if Evercore is forced to reduce employee compensation or replace equity with cash.

Future Outlook

Evercore aims to manage and grow its business over the next two to three years, consistent with its strategy, by continuing to provide a significant portion of incentive compensation in the form of equity.

Management Comments

• Our use of equity has been a key factor in enabling the execution of our growth strategy.
• Our shareholders understand the key elements of our equity compensation program and recognize the flaws in ISS model for a human capital business like ours.
• We strongly believe that our broad-based use of equity compensation (as opposed to cash) is critical because it aligns the interests of our employees with shareholders and permits cash which otherwise would be used for employee compensation to be returned to shareholders.
• We have a track record of prudent equity compensation management, which has been critical for the successful execution of our long-term strategy, employee retention and in our recruitment and promotion of our Senior Managing Directors (SMDs).

Industry Context

The document highlights the importance of equity compensation in human capital-based businesses, particularly in the investment banking advisory sector, where attracting and retaining talent is crucial for success. Evercore argues that its broad-based equity plan aligns employee and shareholder interests, which is a common practice among its direct peers.

Comparison to Industry Standards

• Evercore compares its equity compensation practices to direct peers like Lazard, Moelis, PJT Partners, Greenhill, Houlihan Lokey, and Perella Weinberg Partners.
• The document notes that Evercore's equity compensation practices are in line with its direct public independent investment banking advisory firm peer group.
• The document claims that ISS compares Evercore to a peer group that includes mortgage REITs, consumer and specialized finance companies, lending and trading firms and other non-human capital-based businesses.

Stakeholder Impact

• Shareholders: The outcome of the vote on Proposal No. 4 will impact shareholder value and the company's ability to execute its growth strategy.
• Employees: The equity incentive plan is a key component of employee compensation and motivation.
• Customers: The company's ability to attract and retain top talent will impact the quality of services provided to clients.

Next Steps

• Shareholders will vote on Proposal No. 4 at the Annual Meeting on June 18th.
• Evercore will continue to engage with ISS to address concerns and refine quantitative measures.
• Evercore will continue to monitor the impact of its equity compensation program and share repurchase program on shareholder value.

Key Dates

Keywords

equity compensation, share repurchase, ISS, proxy statement, shareholders, burn rate, dilution, compensation, Evercore