Last week, proxy advisor ISS published updated “FAQs” for pandemic-related
Last week, proxy advisor ISS published updated “FAQs” for pandemic-related
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ISS Updates FAQs on Pandemic-Related Pay Adjustments

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December 13, 2021 |

Thanks to Liz Dunshee

Last week, proxy advisor ISS published updated “FAQs” for pandemic-related pay adjustments. This 6-page document refines the FAQs originally published in October 2020, and explains how ISS will approach these issues beginning in the 2022 proxy season.
The new document notes that the upcoming proxy season will be the third year in which the pandemic has been in play (and the second year of executive pay proxy disclosure occurring under pandemic conditions). Many of the temporary base salary reductions have been lifted, and the “surprise element” of the pandemic is no longer applicable. So:
As in pre-pandemic years, any mid-year changes to metrics, performance targets and/or measurement periods, or programs that heavily emphasize discretionary or subjective criteria will generally be viewed negatively. This will be of particular focus for companies that exhibit a quantitative pay-for-performance misalignment.
However, in certain circumstances lower pre-set performance targets (as compared to 2020) and/or modest year-over-year increases in the weighting of subjective or discretionary factors may be viewed as reasonable for companies that continued to incur severe economic impacts and uncertainties as a result of the pandemic in 2021 (see question #5 below). As before, Companies should clearly explain target setting and any changes to the program, to allow investors to evaluate the compensation committee’s actions and rationale.
The FAQs discuss what disclosure would be useful if mid-year adjustments are made, and/or if incentive targets are lowered below prior-year levels due to pandemic issues. Regarding long-term incentives, the FAQs now say:
As before, changes to in-progress long-term incentive cycles will generally be viewed negatively, particularly for companies that exhibit a quantitative pay-for-performance misalignment. Modest alterations to go-forward cycles (i.e., awards granted for the cycle beginning in 2021) may be viewed as reasonable, particularly for companies that continue to incur severe negative impacts over a long-term period.
For example, some movement from quantitative to qualitative metrics or modest increases in the proportion of time-vesting awards. More drastic changes, such as shifts to predominantly time-vesting incentives or short-term measurement periods, would continue to be viewed negatively. Companies should clearly explain any changes to the program, to allow investors to evaluate the compensation committee’s actions and rationale.
The theme of these FAQs is that investors are expecting a return to traditional incentive structures. They want a strong link to performance and disfavor one-time awards. Deviations from that will be viewed negatively and should be accompanied by robust explanations. The FAQs also clarify that in 2022, ISS will return to its regular scoring thresholds for the Equity Plan Scorecard (it had raised the passing score for some companies in 2021).
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