Alerts
Last week, Institutional Shareholder Services Inc. (“ISS”) released its 2015 proxy voting policy survey, giving institutional investors, corporate issuers and other market constituents an opportunity to weigh in on a variety of compensation, governance and other corporate topics covered in ISS’ policy guidelines. In particular, the survey seeks comment regarding ISS’ equity compensation plan, pay-for-performance and board diversity policies. The results of the survey may be used to make changes to ISS’ proxy voting guidelines, which should be released in November 2014 and effective next year.
With respect to equity plans, ISS has publicly expressed its desire to move towards a more “balanced scorecard” approach in evaluating such plans by focusing on (i) plan cost (e.g., economic and/or voting power dilution), (ii) plan features (e.g., vesting acceleration and liberal share recycling provisions) and (iii) company grant practices (e.g., historical burn rates and use of performance-based grants) collectively, rather than, as in the past, focusing principally on plan cost. The 2015 policy survey provides ISS constituents with an opportunity to suggest the weight that should be attributed to each category and asks whether additional categories should also be considered. Although the “balanced scorecard” approach may be beneficial to many companies, some commentators have expressed concern that such an approach may make it more difficult to predict ISS’ vote recommendations.
In the pay-for-performance area, ISS solicits comment regarding (i) the relationship between goal-setting and award values (e.g., if performance goals are reduced, whether target award levels should also be reduced), (ii) factors that may support limits on CEO compensation and (iii) the effect of remedial actions taken by a company that has demonstrated a pay-for-performance misalignment in prior years. In the governance arena, among other topics respondents are asked to weigh in on questions regarding (i) board diversity, (ii) board accountability related to unilateral adoption or amendment of bylaws that may affect shareholder rights and (iii) the board’s role in risk oversight.
Considerations; Contacts
It is too early to forecast whether and to what extent the 2015 policy survey will result in any changes to ISS’ proxy voting guidelines. However, the survey provides an opportunity for institutional investors and corporate issuers, particularly those issuers that may submit equity plan proposals for shareholder approval in 2015, to provide feedback to ISS on how equity compensation plans and other governance matters are viewed and analyzed by its constituents.
If you have questions about the ISS policy survey discussed in this alert, please contact the Womble Carlyle attorney with whom you usually work or one of our Corporate and Securities attorneys.
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