Proxy advisory firm Institutional Shareholder Services Inc.
(ISS) has released its Canadian policy updates for the 2016 proxy
season. The new guidelines address the definition of
"overboarding" for directors, the assessment of equity
plans and disclosure relating to externally managed issuers. Other
than the change affecting overboarding, which will be implemented
for the 2017 proxy season, the updated guidelines will be effective
for shareholder meetings held on or after February 1, 2016.
To address the increasing time and energy required of public
company directors, ISS will introduce a refined definition of
"overboarding" for the 2017 proxy season.
upcoming 2016 proxy season, ISS will generally issue a
"withhold" recommendation for directors of companies
listed on the Toronto Stock Exchange (TSX) who are
"overboarded" and attended less than 75% of meetings held
within the past year without valid reason (cautionary language will
be included in ISS reports where directors are overboarded,
regardless of attendance). "Overboarded" is defined as
For directors who are CEOs, if they
sit on more than two outside public company boards.
For non-CEO directors, if they sit on
more than six total public company boards.
For shareholder meetings beginning in February of 2017, ISS will
decrease the thresholds applicable to "overboarding" to
one outside public company board for directors who are CEOs and to
four total public company boards for non-CEO directors.
Equity Compensation Plans
Previously, ISS made recommendations on equity-based
compensation plans for TSX-listed companies on a case-by-case
basis, though would generally recommend against a plan that
included pay practices or elements deemed problematic or not in
Under the new policy, ISS will continue to recommend against a
plan if it identifies certain elements it considers problematic,
including insufficiently limited non-employee director
participation, insufficient shareholder approval mechanisms,
historical re-pricing of options or a lack of connection between
pay and performance. In addition, however, ISS is adopting a
"scorecard" model for equity plans of TSX-listed issuers
similar to the model ISS introduced in the United States for the
2015 proxy season.
Under the scorecard approach, ISS will assess a range of factors
and apply a total score to each plan, recommending against a plan
if the total score indicates that the plan is not in
shareholders' interest. The factors ISS will consider fall
within three categories:
Cost: the total estimated cost of
the subject issuer's plans relative to similar issuers based on
industry and market capitalization.
Features: specific features of the
plan, including problematic change-in-control provisions, financial
assistance given to plan participants for the exercise of awards
and reasonable dilution from equity plans, as well as whether the
full text of the plan has been publicly disclosed.
Practices: the average burn rate,
the vesting requirements for the CEO's most recent grants, the
issuance of performance-based equity to the CEO, clawback
provisions, and post-exercise holding requirements.
Previously, ISS did not issue any general recommendations in
relation to externally-managed issuers (EMIs). In an effort to
increase board accountability and improve disclosure for EMIs, ISS
will make recommendations on a case-by-case basis for say-on-pay
resolutions and elections of directors and committee members of an
EMI that has provided minimal or no disclosure about its management
services agreement and how senior management is compensated. In
making its recommendation, ISS will consider the size and scope of
the management services agreement, compensation in comparison to
issuer peers, board and committee independence and conflicts of
The content of this article does not constitute legal advice
and should not be relied on in that way. Specific advice should be
sought about your specific circumstances.
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