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| COMPENSATION IN CONTEXT NEW/UPDATED 2016 ISS EQUITY COMPENSATION PLANS FAQS April 11, 2016 Recently, ISS released an update to its U.S. Equity Compensation Plans FAQs – seven FAQs are literally highlighted in the document: - FAQ #2 - Which equity compensation proposals are evaluated under the EPSC policy? Certain plan amendment proposals may now be evaluated under the EPSC policy, if the amendment(s) would or could increase the potential expense of the program from shareholders' perspective (e.g., by requesting new shares and/or a plan extension).
- FAQ #17: If a company assumes an acquired company’s equity awards in connection with a merger, will ISS exclude these awards in the three-year average burn rate calculation? Previously, in the 3 year average burn rate calculation, ISS focused solely on whether to exclude an acquired company's stock options, but has since updated its policy to include "an acquired company's equity awards".
- FAQ #28: How does ISS evaluate an equity plan proposal seeking approval of one or more plan amendments? Plans being amended without a request for additional shares will receive a recommendation based on an analysis of the overall impact of the amendments – i.e., whether they are deemed to be beneficial or contrary to shareholders' interests. In these cases, the EPSC score will not determine ISS' recommendation, although the EPSC summary and scoring will be displayed for informational purposes.
If the proposed amendments are bundled with a new share request (or are deemed to potentially increase cost), ISS' recommendation will consider both the EPSC score as well as an analysis of the overall impact of the amendments.
Proposals seeking only approval to ensure tax deductibility of awards pursuant to Section 162(m) will generally receive a favorable recommendation, subject to certain other requirements. This will not apply, however, if the 162(m)-related amendments are bundled with other plan amendments in the same proposal.
- FAQ #29: How are plan proposals that are only seeking approval in order to qualify grants as "performance-based" for purposes of IRC Section 162(m) treated?
Proposals that only seek approval to ensure tax deductibility of awards pursuant to Section 162(m), and that do not seek additional shares for grants or approval of other plan amendment(s), will generally receive a favorable recommendation regardless of EPSC factors (“positive override”).
- FAQ #30: How are proposals that include 162(m) reapproval along with additional amendments evaluated?
All "bundled" plan amendments (i.e., multiple amendments voted under one agenda item) will be analyzed to determine whether they are, on balance, positive or negative with respect to shareholders' interests, and ISS will determine the appropriate evaluative framework and recommendation accordingly. This may result in a recommendation based on consideration of both an EPSC evaluation and score and/or the balance of positive and negative impacts from the bundled amendments.
- FAQ #31: How does ISS evaluate amendments by companies listed in France that are made in response to that market's adoption of the Loi Macron (Macron Law)?
The Macron Law adopted in August 2015 introduced changes to the legal requirements and tax treatment for French-qualified restricted stock units (RSUs). Equity plans that are approved by shareholders under this legal framework benefit from a tax advantage and lower employer contribution rates compared to plans under the previous framework. The law also reduces the requirements for minimum vesting and holding periods for RSUs. With respect to U.S. Domestic Issuers (covered by ISS' U.S. policy guidelines) that have stock plans covering French employees affected by the Macron Law, ISS will evaluate proposals seeking qualification under the Macron Law from a U.S. policy perspective on a case-by-case basis, taking into consideration the benefits of the favorable tax treatment as well as the impact of any proposed amendments (i.e. to minimum vesting requirements) on shareholders’ interests.
- FAQ #47: How does ISS determine the treatment of performance-based awards that may vest upon a change in control?
If a plan would permit accelerated vesting of performance awards upon a change in control (either automatically, at the board's discretion, or only if they are not assumed), ISS will consider whether the amount of the performance award that would be payable/vested is (a) at target level, (b) above target level, (c) based on actual performance as of the CIC date and/or pro rated based on the time elapsed in the performance period as of the CIC date, or (d) based on board discretion.
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