United States: ISS And Glass Lewis Update Proxy Voting Guidelines For 2018

ISS Updates Its Proxy Voting Guidelines for 2018

Last week, Institutional Shareholder Services ("ISS") released certain policy updates for annual meetings occurring after February 1, 2018. Key updates for 2018 include: (i) updates to what constitutes a liberal change in control ("CIC") definition; (ii) extension of the Equity Plan Scorecard ("EPSC") to evaluate additional types of plan amendments; (iii) identification of new problematic pay practices; (iv) the impact of CEO pay ratio disclosures on ISS' review; (v) a new policy targeting excessive non-employee director ("NED") pay; (vi) revisions to the EPSC affecting minimum vesting, CIC vesting, stock ownership guidelines and other matters; (vii) addition of a new performance element (Financial Performance Assessment) to ISS' quantitative pay for performance screen; and (viii) a new policy and increased focus on board gender diversity.

Change in Control Definition. ISS updated what constitutes a liberal CIC (e.g., acquisition of common stock of 15% or less vs. the current 20%) and clarified that if a CIC is broadly defined so as to be triggered by ordinary course events (e.g., death or retirement), such definition may be considered to be liberal. ISS has also added that a CIC definition triggered by the addition of new directors who were not nominated by an incumbent board will not be deemed liberal. Companies should pay close attention to these changes as ISS may recommend a vote against a plan based solely on the fact it contains a liberal CIC definition, even if the plan would otherwise pass under the EPSC.

Plan Amendments. ISS will now use the EPSC score to evaluate proposals to extend a plan's term or to include full value awards as an award type where the plan authorizes only options/SARs. ISS will continue to use the EPSC to evaluate amendments increasing authorized shares or where the amendment is the first instance stockholders have to vote on the plan. ISS will typically evaluate other amendments based on their overall impact, following current practice. ISS has counseled companies to file full revised plans in connection with plan amendments; otherwise, ISS may recommend against the plan amendment.

Problematic Pay Practices. Significant pledging of company stock may lead to a vote recommendation against members of the board committee overseeing pledging or the entire board where significant levels of pledging raise concerns. Pledging was formerly considered in the context of governance failures. ISS has also identified the failure to include a say on pay/say on pay frequency ballot item when required by the SEC or the company's declared vote frequency as a problematic compensation practice and added (i) lifetime perquisites; (ii) multi-year guaranteed awards not tied to rigorous performance conditions; and (iii) liberal CIC definitions combined with single-trigger CIC benefits to the list of problematic pay practices most likely to result in adverse vote recommendations.

CEO Pay Ratio. ISS will display the median employee pay figure and CEO pay ratio in its research reports; however, these figures will not impact any vote recommendations at this time.

NED Pay Policy. ISS may recommend against the re-election of any director involved in setting excessive NED pay on a recurring basis (deemed to be two or more consecutive years) absent a compelling rationale or other mitigating factor. As the policy goes into effect in 2018, it will not influence voting recommendations until 2019.

EPSC. Half points can no longer be earned in connection with the CIC vesting, share holding and CEO vesting factors. Full points will now be awarded for the CIC vesting factor only if the plan limits acceleration of performance-based awards to actual performance and/or the fractional performance period and does not permit automatic or discretionary acceleration of time-based awards. To receive full points for the share holding factor, the holding period must be at least 12-months (or through the end of employment/retirement). No points will be awarded for holding requirements that lapse when stock ownership guidelines are met. Full points for the CEO vesting factor may only be earned for three-year vesting requirements (or if no time-based options or restricted shares have been granted in the prior three years). Further, the factor considering a company's discretion to accelerate vesting has been updated such that full points will only be earned when discretion is limited to cases of death and disability; broad discretion to accelerate upon a CIC will no longer result in any points being earned. ISS has also clarified that in order to receive points for the minimum vesting factor, a plan's language should preclude the possibility of awards vesting prior to one year from the grant date (e.g., no ratable vesting in year one or generic vesting descriptions such as "awards will vest over two years"). ISS has also increased the passing EPSC score for S&P 500 companies (only) from 53 to 55.

New Quantitative Pay for Performance Factor. Financial Performance Assessment ("FPA"), which compares a company's financial and operational performance over the long term against an ISS-selected peer group, has been added to ISS' quantitative pay for performance screen. FPA may only impact a company's overall quantitative concern level if the company is otherwise of medium concern or low concern bordering medium concern.

Board Gender Diversity. ISS has created a new policy concerning stockholder proposals on gender pay gap matters. Such proposals will be evaluated on a case-by-case basis considering the company's: (i) diversity and inclusion policies (and disclosures related thereto); (ii) compensation philosophy and use of fair and equitable compensation practices; (iii) involvement in any relevant and recent controversies, litigation or regulatory actions; and (iv) peer position on gender pay gap policies. ISS has similarly updated its director nominee review to emphasize board diversity. ISS reports will highlight lack of board gender diversity but such lack will not result in an adverse vote recommendation.

Miscellaneous. Additional changes in ISS policies for 2018 include, among other items, (i) updated say on pay frequency policy where companies should adopt a frequency that is at least as often as the option receiving a plurality of stockholder votes; (ii) no longer requiring disclosure of scheduling conflicts in a company's proxy statement for new nominees who attend less than 75% of board and committee meetings; (iii) revisions to the policy concerning stockholder proposals on climate change risk; (iv) adjustments to smooth TSR calculations; (v) updates to the pay-for-performance evaluation to include ranking of CEO total pay and company financial performance within its peer group, each measured over a three-year period; (vi) outline of additional disclosures and actions appropriate for companies receiving low say on pay support; (vii) allowing companies to exclude time-based restricted shares granted as consideration for an acquisition from their burn rate calculation if such shares are identified in a new table in the proxy statement; and (viii) adoption of a new policy to recommend a vote against all directors in every year that a long-term poison pill (e.g., term greater than one year) that has not received stockholder approval remains in effect, eliminating the current review structure that provides for pills adopted prior to November 19, 2009 to be grandfathered and generally exempts pills that a company commits to submit to a binding stockholder vote from review, among other items.

Glass Lewis Updates Its Proxy Voting Guidelines for 2018

Glass Lewis's ("GL") 2018 Proxy Paper Guidelines contain several key changes found in the areas of board gender diversity, dual-class share structures, board responsiveness, virtual stockholder meetings, and CEO pay ratio. GL also made clarifying edits to its Director Commitments and Pay for Performance policies.

Board Gender Diversity. While board gender diversity will be considered by GL in 2018, no voting recommendations will be based solely on the lack of board diversity. Beginning in 2019, however, GL will generally recommend against a company's nominating committee chair (and possibly other nominating committee members depending on other factors such as company size, industry and governance profile) if the company's board has no female members, absent a sufficient rationale or a commitment to address the lack of diversity.

Dual-Class Share Structures. GL disfavors dual-class share structures and favors allowing one vote per share. GL will typically favor any recapitalization proposal to eliminate a dual-class structure and will generally recommend against proposals to add a new class of common stock. GL will also consider the presence of a dual-class share structure in determining whether an indefinite restriction of stockholder rights exists following an IPO or spin-off.

Board Responsiveness. GL has clarified that companies should respond to proposals where 20% or more of stockholders vote contrary to management's recommendation, especially if the proposal involves director elections. Likewise, Board responsiveness is also deemed appropriate at companies with dual-class share structures where a majority of unaffiliated stockholders supported a stockholder proposal or opposed a management proposal. GL review of board responsiveness will generally be limited to publicly available disclosures and will cover (but not be limited to): any changes in board or committee membership, disclosure of related party transactions, meeting attendance or other responsibilities; any changes made to the company's governing documents; any press releases indicating the adoption of new or changes to existing company policies or reports; and any changes to compensation design. A company should describe any stockholder engagement on compensation issues in its proxy statement.

Virtual Stockholder Meetings. Beginning in 2019, GL will generally recommend a vote against governance committee members of a company that holds virtual-only stockholder meetings absent robust proxy statement disclosure assuring stockholders that they will be given participation rights similar to those they would have at an in-person meeting. In 2018, GL will look for such robust proxy disclosures; however, lack of such disclosure will not influence voting recommendations.

CEO Pay Ratio. GL will display the pay ratio as a data point in its Proxy Papers; however, it will not determinatively impact GL's voting recommendations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions