ISS recently launched its annual policy survey for purposes of updating and refining its policies for 2017. The Press Release announcing the 2017 Policy Survey can be found at: https://www.issgovernance.com/iss-launches-2017-global-benchmark-policy-survey/. The survey will close on August 30th at 5 pm Eastern.
The ISS 2017 Policy Survey can be accessed at: https://www.surveymonkey.com/r/LZJHK7G
The more interesting questions that could potentially impact ISS’ US policies are:
Q. 2. Overboarding: ISS is asking whether executive chairs should be evaluated for overboarding purposes using either the standard applied to sitting CEOs (no more than 3 total boards) or the standard applied to non-executive directors (no more than 5 total boards).
Q.4. Board Refreshment: ISS is asking whether there are any tenure factors that would cause concern with a board’s nominating and refreshment process. Possible concerns listed include: absence of newly-appointed independent directors in recent years; lengthy average tenure; high proportion of directors with long tenure. ISS also has “tenure is not a concern” and “other” listed as possible responses.
Q.7. Say-on-Pay Frequency: ISS is asking what Say on Pay frequency is favored and if the frequency depends on the company, what factors are considered, including: size of the company, financial performance, presence or absence of recent problematic executive pay practices; or, level of shareholder support for Say on Pay votes at past meetings.
Q.8. Executive Pay Assessments (Cross-border): ISS is asking which of several statements captures how the respondents think about cross-border compensation where a company is incorporated in one country but listed in another [ISS currently evaluates each compensation proposal under the policy fo the country whose laws or listing rules require the vote, but generally aligns the vote recommendations based on the policy perspective of the country in which the company is listed]. The possible views are: (1) vote recommendations for compensation proposals should be aligned so as to not produce inconsistent evaluations of a single pay structure; (2) where pay evaluations under one country’s policy would result in negative recommendation but, under the other country’s policy would result in a favorable recommendation, it is acceptable to have opposing recommendations if each reflects the underlying policy of the relevant country; or (3) other.
Q.10. Metrics Used in P4P Assessments: ISS is asking how much respondents would support the use of metrics other than TSR in quantitative P4P assessments: strongly support; support; neutral; oppose; strongly oppose. If a respondent indicates neutral to strongly support, ISS asks which financial metrics should be used: revenue metrics; earnings metrics; return metrics; return on investment metrics; cash flow metrics; economic profit metrics; or, other.
Based on these questions, I think we can expect some updates to ISS’s P4P analysis as part of its Say on Pay vote recommendations. However, I will be surprised if ISS significantly updates its policy with respect to Say on Pay Frequency since it appears that many investors prefer to see an annual vote which is currently the frequency ISS supports.
According to this BNA blog (http://www.bna.com/sec-proposal-end-b73014445191/), the SEC has proposed to eliminate the Regulation S-K, Item 201(d) disclosure, i.e., the Equity Compensation Plan Information Table that is included in the proxy or annual report depending on whether a compensation plan is being put to shareholder vote. This table provides the outstanding and available shares for shareholder approved and non-shareholder approved equity compensation plans, as well as weighted average exercise price for the outstanding equity awards.
The rationale appears to be that given current financial accounting standards, much of this information is now contained in a company’s publicly-filed financial statements. While that is true to some extent, in my experience, the financial statements are not always the picture of clarity on such disclosure and I believe less information will ultimately be reported about equity plans if this proposal passes.
We will have to watch where this SEC proposal ends up when the final regulations gets issued.
ISS and Equilar both recently opened up their peer group submission periods. This will enable companies to update the peer groups that they will report in their next proxy statement to ensure that these groups are reflected in both ISS’s and Equilar’s records (Note: Equilar uses this information to determine the Equilar Market Peer Group that is used by Glass Lewiss in its pay for performance analysis and the proxy voting groups of a number of institutional shareholders).
ISS’s peer group submission runs from 9 am EST on Tuesday, November 24th until 8 PM EST on Friday December 11th.
- Only companies with shareholder meetings between February 1, 2016 and September 16, 2016 are invited to participate.
- For the first time ISS will include companies in the Russell MicroCap Index.
- Only companies that have made changes to their peer groups (from the peer groups disclosed in their last proxy) need to submit information to ISS
- Peers submitted should be the peers used to set compensation for the fiscal year that will be disclosed in the next proxy.
- Companies can begin the peer group submission process at: ISS Peer Group Submission
- Companies submitting new peer companies must follow-up their submissions with a letter on company letterhead (in PDF) with the full list of peers submitted online.
Equilar’s peer group update window runs from November 16th through December 31st.
- The peer group update is recommended for companies that file proxy statements between January 15, 2016 and July 15, 2016.
- More information about the Equilar peer group validation process can be found here: Equilar Peer Group Validation
- Equilar has also published a FAQ on its Peer Group Update process, available at: Equilar Peer Group Update FAQ
Both ISS and Glass Lewis have issued their 2016 policy updates. Glass Lewis issued its 2016 policy with little fanfare in early November and ISS issued its updated policies for 2016 on November 20, 2015. Links to both firms’ 2016 policies are as follows:
- Glass Lewis’ Proxy Paper Guidelines, 2016 Proxy Season: http://www.glasslewis.com/assets/uploads/2015/11/GUIDELINES_United_States_20161.pdf
- ISS’ Americas Proxy Voting Guidelines Updates, 2016 Benchmark Policy Recommendations: http://www.issgovernance.com/file/policy/2016-americas-policy-updates.pdf
ISS at the same time issued an updated FAQ on its Equity Plan Scorecard (EPSC) Policy: 2016 U.S. Equity Plan Scorecard, Frequently Asked Questions: http://www.issgovernance.com/file/policy/faq-on-iss-us-equity-plan-scorecard-methodology.pdf
The ISS policy updates and FAQs apply to shareholder meetings held on or after February 1, 2016.
Taking a look at the specific policy updates of each for 2016 concerned with compensation, we see the following:
Glass Lewis now indicates that if it identifies egregious compensation practices, it may not only recommend against the Say-on-Pay vote but also recommend against the compensation committee based on the practices or actions of the committee during the year. Glass Lewis identifies as possible egregious practices: large one-off payments; the inappropriate, unjustified use of discretion; or, sustained poor pay performance practices.
ISS’ 2016 policy updates did not directly impact the majority of its compensation policies. Of note is that ISS did revise its policy with respect to compensation-related votes at externally-managed issuers. Now, ISS will generally recommend against the Say-on-Pay proposal where there is an external management structure in place and there is insufficient detail in the company’s disclosures for ISS to perform a comprehensive pay-for-performance analysis. ISS also changed the way ti will approach shareholder proposals to adopt holding periods and will now “strongly consider retention ratio and holding period duration among several other factors.”
In regard to directors, ISS also modified its policy with respect to overboarding. ISS is providing a 1-year transition period for companies to comply with the new overboarding policy and will only issue “warnings” in its proxy reports. After that period, ISS will issue negative vote recommendations on directors who are not public company CEOs and who sit on more than five (5) public company boards. ISS will issue such negative vote recommendations until the director sits on five (5) or fewer public company boards. ISS decided not to further restrict the number of boards on which an acting CEO can sit (Sitting CEOs will not be overboarded unless they sit on more than three public company boards–their own board and up to two (2) other public company boards).
ISS announced June 17, 2015 it has begun its semi-annual peer group construction process for Russell 3000 companies. Russell 3000 companies having meetings between September 16, 2015 and January 31, 2016 may submit the peer group that will be disclosed in the proxy for such meeting used for CEO benchmarking purposes by 8 pm Eastern on Friday, July 10, 2015.
Companies that have not made any changes to their proxy-disclosed peer group or that do not wish to provide such information in advance, do not have to participate.
Starting June 29, 2015, companies can submit their peer groups using the web form available at:
Companies will also have to submit a confirmation letter on company letterhead, submitted using an email address that is from the company’s email domain of the company’s contact.
ISS wants companies to note the following (from Friday’s ISS announcement):
- The peer group provided should be the peer group used for benchmarking CEO pay for the fiscal year ending prior to your next annual meeting.
- If your annual meeting is after January 31, 2016, no action is required as ISS will conduct a separate peer submission process for these companies in late-2015.
- While public disclosure of this information is not required, our expectation is that the same peers provided via this form will be disclosed in the upcoming proxy. Significant differences between submitted peers and peers cited in the 2015 proxy for 2014 pay may cause ISS to re-run the peer group and may result in the company not being able to pre-submit peers in future years.
- The ISS research team will use this information only for the purpose of constructing peer groups.
- Submissions should include your complete peer list, selected through the lookup tool provided.
- Please do not make multiple submissions or submit information other than relevant peers, as this may disrupt accurate submission of your peers.
- Important: Following submission of the online form, you will need to confirm your submission by sending ISS an electronic copy (scanned PDF or equivalent) of the submitted list on your company’s letterhead along with your name, email address and company name, to email@example.com. The confirmation email must be from the email domain of the company contact, in order to confirm that the submission was made by an authorized party. Detailed instructions for this confirmation step are provided online as part of the submission process.
- Feedback and confirmation letters must be submitted no later than 8PM EDT on Friday, July 10, 2015.
- Note that, as in prior years, ISS peer groups are not finalized until our research is published.
FAQs about ISS’s peer group methodology are set out in, 2015 U.S. Proxy Voting Policies and Procedures–Frequently Asked Questions on Peer Group Selection Methodology, which can be found at: