On September 29, 2014, ISS released the results of its 2014-2015 Policy Survey. ISS highlighted several survey results related to compensation matters, including:
- Responses regarding pay for performance; and
- Equity plans.
Pay for Performance (P4P)
ISS highlighted the responses to several survey questions that dealt with P4P. ISS indicates that investors liked the idea of having CEO pay limits relative to company performance (27% of investors supported, while only 12% of issuers agreed). The magnitude of CEO pay was considered when evaluating pay practices by 24% of investors and 50% of issuers. Based on these responses, and the additional follow-up questions, ISS may propose a refinement to its P4P policy that does more to evaluate the CEO pay versus both absolute and relative measures. Currently, the ISS P4P policy compares a CEO’s pay to that of the median CEO pay of the ISS peer group for the company. So, we’ll have to see if this means ISS will add two components to the CEO pay evaluation–both a relative and absolute analysis–and how these will factor into the overall quantitative concern level.
ISS indicates in the survey results that it will be revising its equity plan policy for the 2015 proxy season (i.e., for shareholder meeting held on or after February 1, 2015). According to the narrative, ISS will implement a “balanced scorecard” approach for evaluating equity compensation plans that will evaluate the proposal under three categories:
- Plan Features; and
- Company Grant Practices.
ISS indicates that issuers supported a weighting of these categories as follows:
- 70% of investors supported weighting of 30% to 50% for Cost, with 40% being cited most often;
- 62% of investors supported weighting of 25% to 35% for Plan Features; and
- 64% of investors supported weighting of 20% to 35% for Grant Practices.
ISS has given no indication of what the final weighting will be, but they could be 40/30/30. Additionally, ISS did not necessarily explain what was included in each fo these broad categories. While I assume “Cost” refers to the ISS Cost calculated for an equity plan proposal using ISS’s ISSue Compass model, it is not absolutely certain that ISS won’t introduce some additional factors into the Cost category. The same holds true for the other categories, Plan Features and Grant Practices, which, conceivably, ISS already addresses in its proxy reports on equity plan proposals. However, there is no indication if there will be additional features (such as liberal share counting) that might cause a proposal to lose all the points under the Plan Features category. Likewise, while Grant Practices probably includes the ISS Burn Rate evaluation, it is by no means absolutely certain that is all it will include. It also isn’t clear to me what will happen if a company exceeds the ISS Burn Rate Cap but makes a public commitment, will that still be viewed as an override and cause a company to not lose points under the Grant Practices category?
The possibilities are numerous and, unfortunately, not touched upon in these survey results. However, they do indicate a significant reorganization to the ISS equity plan proposal policy and all companies should keep an eye out to see what the actual draft policy looks like and try to understand what differences exist from the current policy and how that might impact share requests.
A copy of the ISS Press Release announcing the survey results can be found here:
The actual 2014-2015 Policy Survey results can be found here: