Yesterday, ISS
released its 2018 benchmark proxy voting policy changes for meetings on or after February 1, 2018. As previously reported
here and
here, US-specific updates include changes to ISS's approach on "excessive" non-employee director compensation, shareholder proposals on gender pay gap reporting, and poison pills.
Here are relevant excerpts from the
Executive Summary (emphasis added):
(i)
Director Elections - Non-Employee Director Pay – Although NED pay magnitude varies by company size and industry, ISS has identified some extreme outliers that pay directors substantially more than their peer companies without providing a clear explanation for these discrepancies. Investor respondents to ISS' 2017-2018 Policy Application Survey indicated a strong preference for the consideration of adverse vote recommendations where a pattern of excessive NED pay levels at a company has been identified. Accordingly,
ISS is introducing a policy that provides for adverse vote recommendations for board/ committee members who are responsible for approving/setting NED compensation when there is a recurring pattern (i.e. two or more consecutive years) of excessive NED pay magnitude without a compelling rationale or other mitigating factors. The new policy update will not impact vote recommendations in 2018. Going forward, negative recommendations would be triggered only after a pattern of excessive NED pay is identified in consecutive years.
(ii)
Shareholder Proposals - Gender Pay Gap – ISS is introducing a new policy to address
shareholder proposals related to gender pay gaps,
specifically on requests for reports on a company's pay data by gender, or a report on a company's policies and goals to reduce any existing gender pay gaps. Under the policy, ISS will evaluate these proposals on a case-by-case basis taking into account the following factors:› The company's current policies and disclosures related to both its diversity and inclusion policies and practices;
› The company's compensation philosophy and use of fair and equitable compensation practices;
› Whether the company has been the subject of recent controversies, litigation or regulatory actions related to gender pay gap issues; and
› Whether the company's reporting regarding gender pay gap policies or initiatives lags its peers.
The new policy reportedly provides more clarity regarding ISS' approach to gender pay gap proposals as the number of shareholder proposals filed on the topic is likely to grow.
(iii)
Director Elections – Poison Pills – ISS'
current policy on director elections where the board adopted or renewed a poison pill that was not approved by shareholders has several areas of focus: (i) pills with “deadhand” or “slowhand” features, (ii) pills with terms greater than one year (
long-term pill), (iii) adoption (not renewal) of a pill with a
term of one year or less is considered on a case-by-case basis and
generally does not cause an against recommendation on the board if there was a compelling rationale for its adoption and the company has a generally good governance track record.
Under the updated policy, ISS will recommend against all board nominees, every year, at a company that maintains a long-term poison pill that has not been approved by shareholders. Therefore, members of annually-elected boards would receive adverse recommendations on an annual basis, rather than every three years. Commitments to put a long-term pill to a vote the following year would no longer be considered a mitigating factor. Boards with 10-year pills currently grandfathered from 2009 would no longer be exempt and would receive against recommendations. With the sunset of grandfathering, there will also be no need to have a separate policy regarding deadhand or slowhand features since the few remaining deadhand/slowhand pills are non-shareholder approved and would be covered under the updated policy.
Short-term pill adoptions would continue to be assessed on a case-by-case basis, but the updated policy would focus more on the rationale for their adoption than on the company's governance and track record. Renewals or extensions of an existing pill, as is the case under the current policy, will not receive the case-by-case assessment.
See this comprehensive, succinct summary of all of the updates from Kingsdale Advisors. The complete updated guidelines - which include an additional factor in the CEO P4P analysis, detail ISS's expectations on proxy disclosures to gauge Compensation Committee responsiveness in the event of a low (less than 70%) SoP vote, and expand those circumstances under which ISS will recommend support for climate change risk shareholder proposals - are here.
We will be posting these documents and the inevitable flow of commentary, analysis and guidance on these updates on our Proxy Advisors topical page here.