COMPENSATION IN CONTEXT
ISS ANNOUNCES DRAFT 2016 POLICY AND OPEN COMMENT PERIOD
October 28, 2015
Earlier this week, ISS Research issued its key proposed draft policy changes for comment to allow all interested parties – including companies, investors, advisors, and others – to provide their perspective. If adopted by ISS Research, these policies would take effect for meetings on or after February 1, 2016.
You will be able to submit your comments through 6 PM (Eastern) on Monday, November 9th. Please click here to access the policy drafts from the ISS website. ISS expects that final policy announcements will be released on November 18th. In past years, ISS has announced other policy changes that were not submitted for draft review; when those final policy announcements are released, ISS will send you an update. Please keep in mind that certain other policy application matters, such as burn rate thresholds and pay for performance quantitative concern thresholds, are typically announced through updated ISS FAQs in mid-December.
For companies subject to ISS Research’s Benchmark United States policy, there are three significant proposals to be aware of:
Director overboarding:- ISS is proposing to issue a negative vote recommendation on director elections for public company CEOs that sit on more than their own board and one other. Withhold recommendations would apply to directorships other than the CEO’s own company.
- ISS is also proposing to issue a negative vote recommendation for directors who are not public company CEOs that sit on more than either four or five public company boards. ISS is seeking feedback to determine if the limit should be four or five outside public company boards.
- ISS is proposing to offer a one-year transition period where ISS will issue cautionary language in proxy advisory research reports, but not issue negative vote recommendations for directors that are overboarded under the new policy (but not under the former policy).
Negative director election vote recommendations for directors that have taken unilateral board actions:- ISS is proposing to clarify its director election policy to state that upon a unilateral reduction of shareholder rights, ISS will proposing to issue negative vote recommendations on director elections until a majority of shareholders approve the rights reduction, or until the rights are fully restored.
- In addition, ISS is also proposing to issue a negative vote recommendation for directors of newly-public companies when the directors have taken adverse actions before the IPO, including classifying the board and introducing supermajority voting requirements.
Compensation-related votes at externally-managed issuers:- ISS proposes to recommend against say-on-pay proposals where there is an external management structure in place, and there is insufficient detail in the company’s disclosures for ISS to perform a comprehensive pay-for-performance analysis.
