On November 21, 2018, ISS issued a set of preliminary FAQs on Compensation Policies for 2019. These FAQs are effective for shareholder meetings on and after February 1, 2019.
The key points from these preliminary FAQs are:
- Quantitative Pay-For-Performance Screen: ISS will not make any changes to its quantitative pay-for-performance screens for 2019.
- “Excessive” Non-Employee Director (NED) Pay: ISS will not begin to apply the “excessive pay” policy concerning NED pay until 2020 (instead of the originally announced 2019), as it intends to provide more details on the methodology it employs in identifying NED pay outliers.
- Equity Plan Score Card (EPSC) Scoring: EPSC scoring thresholds will remain the same as 2018
- EPSC “Overriding” Factors: ISS will now include excessive dilution (simple dilution) as an overriding factor that will cause it to recommend against equity plan proposals. For S&P 500 companies the dilution trigger is greater than 20 percent, and for other Russell 3000 companies, the dilution trigger is greater than 25 percent. ISS defines dilution for this purpose as (A + B + C) / CSO, where A = # of new shares requested, B = # shares that remain available for issuance under continuing plans; C = # unexercised/unvested outstanding equity awards; and, CSO = common shares outstanding.
- EPSC Model’s Change-in-Control (CIC) Factor: The CIC factor under the EPSC model will be updated to evaluate the quality of disclosure of CIC vesting provisions, rather than be based on the actual vesting treatment of awards as was previously the case. Full points under the CIC factor will require the equity plan to disclose with specificity the CIC vesting treatment for both performance- and time-based awards. If the plan is silent on the CIC vesting treatment for either type of award, or if the plan provides for merely discretionary vesting of either type of award, then no points will be earned for the CIC factor.
The ISS Preliminary FAQ: US Compensation Policies, can be found at: