DEFA14A: Lazard Disputes ISS Report on Say-on-Pay Proposal, Citing Methodological Errors

Lazard is challenging Institutional Shareholder Services' (ISS) recommendation against its say-on-pay proposal, arguing that flawed peer group selection and equity award valuation methods led to an inaccurate assessment of executive compensation alignment with performance.

Summary

• Lazard has expressed strong concerns regarding the ISS report on its say-on-pay proposal, arguing that the report contains methodological errors.
• The company believes these errors lead to an inaccurate assessment of the alignment between CEO pay and company performance.
• Lazard highlights two main issues: the use of a new and unprecedented peer group and an unconventional approach to valuing equity awards.
• ISS's peer group includes Freedom Holding, a Kazakhstan-based firm with little similarity to Lazard, which Lazard argues is inappropriate.
• Lazard also claims that ISS overvalued the CEO's 2023 equity award by more than double, using a simplistic methodology that doesn't account for the rigor of stock price hurdles.
• Lazard states that removing Freedom Holding from the peer group or using the company's determined value for the equity awards results in a 'low concern' rating under ISS's own methodology.
• The company also defends its responsiveness to shareholder feedback, particularly regarding concerns about repeated grants of special stock price PRPU awards, noting that they do not intend to grant additional awards prior to 2030.
• Lazard is committing to incorporate performance-based metrics into its incentive compensation program after conducting a comprehensive review, with the Compensation Committee's independent compensation consultant, of its program.
• The resulting updates to the program will be disclosed in the proxy statement for Lazard's 2026 Annual Meeting of Shareholders.

Sentiment

Score: 4

Explanation: The document expresses strong disagreement with ISS's analysis, indicating a defensive posture. While Lazard presents a case for its compensation practices, the need to dispute a negative recommendation suggests underlying concerns.

Positives

• Lazard's management believes its pay and performance are well-aligned when compared with an appropriate peer group.
• The company has committed to incorporating performance-based metrics into its incentive compensation program.
• Lazard states that the Compensation Committee has no plans to grant additional Stock Price PRPUs (or other special one-time awards) to named executive officers; and, in any event, does not intend to do so prior to 2030.

Negatives

• ISS has raised concerns about the alignment between CEO pay and TSR relative to an ISS-derived peer group.
• ISS asserts that Lazard demonstrated limited responsiveness to shareholders following the advisory vote to approve the compensation of Lazard's named executive officers for fiscal year 2023 at Lazard's 2024 Annual Meeting of Shareholders, particularly with respect to annual incentive determinations and concerns about a high burn rate.

Risks

• A negative recommendation from ISS on the say-on-pay proposal could lead to shareholder dissatisfaction.
• If Lazard fails to adequately address shareholder concerns regarding executive compensation, it could face further opposition in future votes.
• The dispute with ISS could damage Lazard's reputation with investors.

Future Outlook

Lazard is committing to incorporate performance-based metrics into its incentive compensation program after conducting a comprehensive review, with the Compensation Committee's independent compensation consultant, of its program. Part of this review will involve continued shareholder engagement in 2025 to determine how shareholders would like us to implement such changes. The resulting updates to our program will be disclosed in the proxy statement for Lazard's 2026 Annual Meeting of Shareholders.

Management Comments

• We write to express our strong concern regarding your research regarding our say-on-pay proposal in your proxy report (ISS Report).
• Using Freedom Holding as a peer is wrong.
• When measured against the appropriate peers, our pay and performance are well aligned.

Industry Context

This announcement highlights the ongoing scrutiny of executive compensation and the influence of proxy advisory firms like ISS. Companies are increasingly focused on engaging with shareholders and addressing their concerns about pay practices.

Comparison to Industry Standards

• The document references Lazard's peer group as described on page 32 of the 2025 Proxy Statement, suggesting that Lazard has identified companies it considers comparable for compensation purposes.
• The document also mentions Blue Owl Capital, Inc.; Robinhood Markets, Inc.; and T. Rowe Price Group, Inc. as companies added to the ISS peer group, which Lazard disputes.
• The document compares Lazard's valuation of its CEO's equity awards to ISS's valuation, highlighting a significant difference in methodology and resulting value.

Stakeholder Impact

• Shareholders may be influenced by ISS's recommendation against the say-on-pay proposal.
• Employees may be affected by changes to the incentive compensation program.
• Management's reputation is at stake in this dispute with ISS.

Next Steps

• ISS is requested to review its analysis and provide an updated recommendation.
• Lazard will continue shareholder engagement in 2025 to determine how shareholders would like the company to implement changes to its incentive compensation program.
• Lazard will disclose updates to its incentive compensation program in the proxy statement for its 2026 Annual Meeting of Shareholders.

Key Dates

Keywords

say-on-pay, ISS, executive compensation, peer group, TSR, Lazard, proxy statement, shareholder engagement, Freedom Holding, equity awards