Today - as part of its annual global benchmark policy formulation process - ISS launched its 2017 Annual Policy Survey. Responses will inform ISS's consideration of potential updates to its benchmark policy guidelines for the 2017 proxy season. Institutional investors, companies, corporate directors and other
market constituents can participate in the survey here.
Gibson Dunn's new post highlights these - among other - policy area inquiries:
- Pay-for-performance analysis. ISS applies a quantitative screen as the first step in evaluating say-on-pay proposals. Currently, this screen is based on TSR (total shareholder return), relative to a peer group over a three-year period, and on an absolute basis over a five-year period. The survey asks whether ISS should incorporate additional financial metrics into the quantitative screen as a better way of assessing the alignment between pay and performance, and what metrics to include, such as measures tied to revenue, earnings, return (such as return on assets or return on equity), cash flow, economic profit or other benchmarks.
- Board refreshment. The survey asks about factors involving director tenure that may be viewed as raising concerns about a board’s refreshment and nominating process, including the absence of new directors who were appointed in recent years, “lengthy” tenure (which the survey describes as average tenure of more than ten or 15 years, a “high proportion” of directors with long tenure (which the survey describes as three-quarters of the board with service of ten years or more). ISS has previously solicited comment on whether it should revise its voting policies on director elections to take into account director tenure, but has not yet done so.
- “Overboarding” of executive chairs. The survey asks whether executive chairs—that is, separate chairs who are not independent, but are not the company CEO—should be subject to the same limit on outside board service as public company CEOs or the higher limit applicable to other directors. Under current ISS policies, public company CEOs (and other executives) are subject to a lower limit than other directors: two outside boards in addition to their own. Other directors are subject to a total limit of five outside boards beginning in 2017, down from six as a result of changes ISS made to its voting policies for this year. Currently, executive chairs fall under the higher limit. For 2016, ISS had proposed reducing the limit for public company CEOs to one public company board besides the CEO’s own. Although ISS did not make this change, and has not requested comment on it as part of this year’s policy survey, this remains an issue where changes could be made for 2017.
- “Say-on-frequency.” Most public companies will hold their second “say-on-frequency” vote in 2017 to solicit shareholder feedback on how often to hold their say-on-pay votes, as this is required every six years. In light of this, the survey asks whether companies should hold say-on-pay votes every one, two or three years and what factors, if any, may bear on the frequency that is appropriate, including things like company size, financial performance, the presence or absence of “problematic” pay practices and prior shareholder support for say-on-pay.
The
survey reportedly will close on August 30th at 5pm ET.