ISS published its 2017 Benchmark Policy Recommendations (proxy voting guidelines) today, which are applicable to meetings on or after February 1, 2017. Here are excerpts concerning a few of the updates from Davis Polk Partner and Society member Ning Chiu's post:
- Overboarding. Similar to Glass Lewis, ISS also deferred its new overboarding policy until this season. ISS will recommend against directors who (a) sit on more than five public company boards or (b) are CEOs of public companies who sit on the boards of more than two public companies besides their own.
- Restrictions on Binding Shareholder Proposals. Some states permit companies to restrict Rule 14a-8 rights in their charters. According to ISS, “these prohibitions flew under the radar until relatively recently.” ISS will issue adverse vote recommendations for governance committee members if the company’s charter imposes undue restrictions on shareholder’s ability to amend the bylaws. Examples of these restrictions include a prohibition on the submission of binding shareholder proposals or share ownership or time holding requirements that are in excess of Rule 14a-8 requirements. The adverse recommendations would continue until the restrictions were removed.
- Management Proposals to Ratify Director Compensation. In response to lawsuits on non-employee director compensation, some companies have put forth advisory proposals seeking ratification. Management proposals to ratify non-employee director compensation will be evaluated based on: if the equity plan under which non-employee director grants are made is on the ballot, whether or not it warrants support; the relative magnitude of director compensation as compared to companies of a similar profile; the presence of problematic pay practices relating to director compensation; director stock ownership guidelines and holding requirements; equity award vesting schedules; the mix of cash and equity-based compensation; meaningful limits on director compensation; the availability of retirement benefits or perquisites; and the quality of disclosure surrounding director compensation.
- Equity Plans for Non-Employee Directors. ISS has updated and broadened the factors it will consider when examining these plans. The general policy is a case-by-case determination based on: the total estimated cost of the company’s equity plans relative to industry/market cap peers, measured by the company’s estimated Shareholder Value Transfer (SVT) based on new shares requested plus shares remaining for future grants, plus outstanding unvested/unexercised grants; the company’s three-year burn rate relative to its industry/market cap peers; and the presence of any egregious plan features (such as an option repricing provision or liberal CIC vesting risk).
If the director stock plans will exceed the plan cost or burn rate benchmarks when combined with employee or executive stock plans, ISS will also consider qualitative factors including the relative magnitude of director compensation as compared to companies of a similar profile; the presence of problematic pay practices relating to director compensation; director stock ownership guidelines and holding requirements; equity award vesting schedules; the mix of cash and equity-based compensation; meaningful limits on director compensation; the availability of retirement benefits or perquisites; and the quality of disclosure surrounding director compensation.
See ISS's release, and numerous additional resources on our Proxy Advisors topical page.