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Friday, December 9, 2016

vote-do-not-useLast month, Institutional Shareholder Services (ISS) published updates to its proxy voting guidelines effective for meetings on or after February 1, 2017.  Key compensation-related changes include the following:

Non-Employee Director Compensation Programs

In the case of management proposals seeking shareholder ratification of non-employee director compensation, ISS will review such proposals on a case-by-case basis utilizing the following factors:

  • Amount of director compensation relative to similar companies
  • Existence of problematic pay practices relating to director compensation
  • Director stock ownership guidelines and holding requirements
  • Vesting schedules for equity awards
  • Mix of cash and equity-based compensation
  • Meaningful limits on director compensation
  • Availability of retirement benefits or perquisites
  • Quality of director compensation disclosure

To the extent the equity plan under which non-employee director grants are awarded is on the ballot, ISS will consider whether it warrants support.  When a plan is determined to be relatively costly, ISS vote recommendations will be case-by-case, looking holistically at all of the factors, rather than requiring that all enumerated factors meet certain minimum criteria.

Equity Plan Scorecard

Proposals to approve or amend stock option plans, restricted stock plans and omnibus stock incentive plans for employees and/or employees and directors are evaluated using an equity plan scorecard (EPSC) approach.  For 2017, ISS has made the following changes to the EPSC:

  • Addition of New Dividends Payment Factor. Full points will be earned only if the equity plan explicitly prohibits, with respect to all award types, the payment of dividends prior to the vesting of the underlying award.  However, accrual of dividends for payment upon vesting is acceptable.  If such prohibition is not set forth in the equity plan or is incomplete, no points will be awarded.
  • Modification of Minimum Vesting Factor. The equity plan must specify a minimum vesting period of at least one year for all types of awards in order to earn the full points.  Plan provision permitting the reduction or elimination of the one-year vesting requirement under an individual award agreement will result in no earned points.

Additional information regarding the updates to the EPSC policy is expected in the ISS Equity Compensation Plans FAQ scheduled to be published later this month.

Amendments to Cash and Equity Incentive Plans

The ISS clarified that it will vote for proposals to amend executive cash, stock or cash and stock incentive plans if the proposal (i) is only to address administrative features or (ii) seeks approval for Code section 162(m) purposes only and the committee administering the plan consists entirely of independent outsiders.

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