Live from the last day of the 23rd Annual NASPP Conference in San Diego! As always, most of the sessions produced valuable information for the upcoming proxy season. The session “Demystifying ISS's Equity Plan Scorecard (EPS)” with John Roe, Valerie Ho, and me covered several interesting points and provided a few clarifications on the EPS.
- ISS expects to release a few changes to the EPS for 2016 in mid-December. One possible change will be to increase the importance of and/or stiffen the standards for the burn rate calculation, as ISS believes that this factor has the highest correlation with long-term performance.
- 2015 has produced (thus far) a record pass rate for shareholder approval of companies’ stock plans.
- ISS list certain “deal breakers” that will cause it to recommend an “against” vote, despite all other factors of the EPS. Given the critical nature of this list, last year we were particularly concerned about the vague reference to a “pay for performance disconnect.” In 2015, only two plans received an “against” recommendation from ISS due to the P4P deal breaker – apparently due to an excessive concentration of awards to the CEO – and both earned shareholder approval anyway.
- To take advantage of the 5% “carve-out exception” to the minimum vesting provisions, the plan document must expressly include that language.
The panel discussion included tips on disclosures companies could make that would make it easier for ISS to find a plan's key features for EPS and, therefore, more likely that it will issue a favorable recommendation, including a suggestion that companies provide additional detail in their 10-K disclosure of recent awards in order for ISS to score them properly.
Next year’s conference will be in Houston.