ISS Updates 2023 Compensation FAQ

Despite a lack of focus on compensation in ISS’s 2023 policy survey and overall policy changes, there were several changes to the FAQs for compensation, equity plans and TSR performance medians.

• Compensation Policies. ISS will expand the ability for its Financial Performance Assessment (FPA) to impact overall concern levels. This means that the review of company financials in addition to TSR could have more influence on whether a company escapes (or receives) a negative recommendation. Additionally, ISS added a new FAQ on CEO transition pay, noting that performance-based new hire awards are preferred, and noted that where companies use a modifier metric in incentive plans, it should not contribute to “an overemphasis of committee discretion.”
  
  
  1. ISS announced a much-awaited statement on how it will incorporate the new SEC Pay Versus Performance disclosure. ISS will display certain elements from the new table, including the Compensation Actually Paid value, the company and peer group TSR, the Company Selected Metric, and the other disclosed “important metrics” for determining CEO pay. The new disclosures will not influence the quantitative screen, but may be considered during the qualitative evaluation. The new disclosures are “not expected to replace investors' prior disclosure expectations around incentive pay.”
     
     
• Equity Plan Policies. The main changes to the equity plan machinery involve increasing thresholds for getting shares approved, which may result in fewer shares passing the model than previously (which may in turn lead to having to request shares more often). ISS also announced it has sharpened its clawback policy such that to receive full points, companies have to disclose clawbacks on ALL equity including time-based – much more expansive than the recent SEC rule.

The new policies apply to meetings on or after February 1, 2023.