October 17, 2014
ISS released several draft policy changes for 2015 this week, including a major overhaul of its process for evaluating company stock plans up for shareholder approval. Under the new process for which it is seeking public comment, ISS will shift from a series of pass/fail standalone tests focused on the cost of the equity plan and so-called egregious practices to a scorecard approach that takes into account cost, plan features and grant practices under a qualitative evaluation. Although ISS states the policy is not designed to increase negative recommendations, the new model incorporates evaluation of several factors which historically have been considered in the context of a non-binding say on pay vote. Since equity plan votes are binding, a negative recommendation on an equity plan may carry more weight with companies and boards. Key features of the new plan, which are expected to take effect for shareholder meetings occurring on or after February 1, 2015, include:
Although only a small number of the equity plans ISS has historically recommended against (on average, 30% of all plans) actually failed a shareholder vote, the binding nature of equity plan votes makes them particularly sensitive. Whether or not the new policy results in increased negative vote recommendations, it is likely that ISS's consulting arm will benefit from increased numbers of companies anxious to understand the likelihood that their equity plans will be judged acceptable. The Association's Center On Executive Compensation will be submitting comments to ISS on the draft policies; companies who wish to submit their own comments may do so by 6 p.m. EDT on October 29 by emailing email@example.com.