ISS Announces 2019 Policy Updates

ISS Announces 2019 Policy Updates

On November 19, 2018, ISS announced its policy updates for the 2019 proxy season. These updates will apply to shareholder meeting on and after February 1, 2019.

While ISS did not announce any changes to its pay policies for 2019, it did indicate that it will feature EVA metrics in its proxy reports for U.S. and Canadian companies on a phased-in basis over 2019. ISS will continue to use GAAP measures in its quantitative pay-for-performance (P4P) test’s Financial Performance Assessment (FPA) during 2019. However, the clear indication is that ISS will continue to study how to bring EVA metrics into its quantitative P4P assessment, as it received feedback from its clients that they agreed with the direction ISS was taking in this regard.

For director elections, ISS will make a change with respect to board gender diversity. For U.S. companies, ISS is announcing a new policy that will take effect February 1, 2020 with respect to companies in the Russell 3000 or S&P 1500 indexes that do not have any women on their boards may cause ISS to issue adverse voting recommendations with respect to nominating committee chairs, and, on a case-by-case basis, and with respect to other directors who are responsible for the board nomination process. The policy would allow the absence of board gender diversity to be temporarily explained and excused.

The 2019 policy updates can be found on ISS’ Latest Voting Policies Page:

Latest Voting Policies

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ISS Opens Peer Group Submission Period

On November 5, 2018, ISS announced that it will soon open its peer group submission period for companies having shareholder meetings between February 1, 2019, and September 15, 2019.

The ISS peer group submission period will run from Monday, November 19, 2018, at 9 am Eastern, through Friday, December 7, 2018, at 8 pm Eastern. Companies can submit peer groups using ISS Corporation Solutions’ (ICS) Governance Analytics platform.

If your company’s peer group changed from the one disclosed in your last proxy, you should give due consideration to providing the updated peer group to ISS during this period.  Providing your company’s updated peer group will help ensure that ISS uses the correct peer group in its analysis of your next proxy.

For more information, including links to ISS’ FAQs on its peer group methodology and the ICS Governance Analytics platform, please go to:

Company Peer Group Feedback

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ISS Issues Draft 2019 Voting Policies for Comment

This morning, ISS posted its draft voting policies on its website (https://www.issgovernance.com/policy-gateway/2019-benchmark-policy-consultation/). Anyone interested in providing comments on these draft voting policies may do so before 5:00 p.m. Eastern on November 1, 2018 by emailing his/her comments to ISS at  policy@issgovernance.com. Comments will be made public by ISS when the final voting policies are released–expected the middle of November 2018.

For the US market, ISS issued two draft voting policies:

  • Board Gender Diversity, and
  • Financial Performance Assessment Methodology

Board Gender Diversity

ISS is proposing to  generally vote against or withhold from the chair of the nominating committee (or other directors who are responsible for the board nomination process on a case-by-case basis) at companies when there are no female directors on the board. Mitigating factors that may be considered include:

• a firm commitment, as stated in the proxy statement and/or other SEC filings to appoint at least one female director to the board in the near term (before the next annual general meeting);
• the presence of at least one female director on the board at the immediately preceding annual meeting; and/or
• any other compelling factors considered relevant on a case-by-case basis.

ISS is proposing to apply the policy for meetings on or after February 1, 2020 , which gives a 1-year phase-in period (roughly 2019).

ISS is interested in comments concerning: when it should recommend against directors other than chair of the nominating committee, whether there are any mitigating factors that should be considered, and, if so, what weight should be given to such factors, the appropriate time period for a commitment to appoint a female director to an all male board, and whether commenters agree with the one year transition period for this policy to take effect.

Financial Performance Assessment Methodology

ISS is proposing shifting away from using GAAP financial measures to Economic Value Added (EVA)-related metrics, such as EVA Spread, EVA Margin, and EVA Momentum. ISS indicates that companies would be provided these EVA metric data points free of charge prior to their annual meeting and ISS analysis.

ISS is not clear on when this proposed policy change would take effect.  So it might be for 2019 or 2020.

ISS is asking whether commenters believe the quantitative P4P tests should continue to emphasize TSR. ISS is also interested in finding out if the decision is made to implement the EVA measures whether people would still like the GAAP measures to be reported on an informational basis.

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ISS Issues FAQs on New GICS Group

On September 20, 2018, ISS issued a series of FAQs concerning Global Industry Classification Standard (GICS) Code 5020 Implementation (available at: https://www.issgovernance.com/file/policy/active/americas/GICS-5020-FAQ.pdf). This change caused a number of companies to be moved from the GICS 2540, Media, group to the new GICS 5020, Media & Entertainment, group.

The key points from these FAQs are:

  • Companies in the new GICS 5020 group should see higher Burn Rate Thresholds than in the old GICS 2540 group.
  • ISS peer groups being constructed for shareholder meetings starting September 15, 2018 have been updated to reflect the new GICS group.
  • ISS will continue to use a company’s legacy GICS group to assess non-employee director pay (under ISS’ excessive NED pay policy) until February 1, 2019. At that date, ISS will switch over to utilizing the new GICS group in assessing NED pay.
  • ISS will update the GICS groupings used to determine median 1-, 3- and 5-year TSR starting September 30, 2018.
  • ISS will evaluate equity plan proposals using the updated GICS group for burn rate information starting with meetings on February 1, 2019.
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