On November 16, 2017, ISS released it policy updates for 2018. These updated policies will apply to shareholder meeting on or after February 1, 2018.
For the U.S., there are several compensation-related policies that were updated:
- Pay-for-Performance Policy — starting in 2018, ISS will add a new relative quantitative test that measures relative CEO against three to four relative financial performance metrics, which will vary by industry, all measured over a 3-year period similar to the RDA or Relative Degree of Alignment test which compares CEO pay and TSR over a 3-year period.
Note: ISS indicated that it will provide specific details around the mechanics of its updated quantitative P4P screening methodology in an updated P4P white paper. ISS did not give an estimated timeframe for the release of this updated white paper, but in the past, such P4P white papers have been released in late January or early February after policy updates. I will provide details on the P4P quantitative screening mechanics once the white paper becomes available.
- Advisory Votes on Executive Compensation: Compensation Committee Communications and Responsiveness–this policy looks at a company’s response to a say on pay (SOP) vote that received less than 70% support. ISS is now clarifying the information it wants companies to detail in their subsequent year proxy statements about their reaction to such a low SOP vote, including the timing and frequency of shareholder engagements, whether independent directors participated, the specific concerns raised by dissenting shareholders, and disclosure of specific and meaningful action to address shareholders’ concerns.
- Board Accountability–ISS will generally vote against members of the board committee responsible for approving/setting non-employee director compensation if there is a pattern (i.e., two or more years) of awarding excessive non-employee director compensation without disclosing a compelling rationale or other mitigating factors.
The ISS policy updates can be found on ISS’ Latest Voting Policies page: