According to ISS, Emerson Electric (the Fergusson, Mo. – based electrical equipment manufacturer) was the first U.S. company to which ISS applied its new Equity Plan Scorecard policy. On February 3rd, Emerson held its shareholder meeting, at which time, it put its 2015 Incentive Shares Plan up for shareholder approval. Based on a recently filed Form 8-K, Emerson’s shareholders resoundingly approved the plan.
In general, the new ISS policy analyzes equity plan proposals pursuant to three pillars:
- Estimated Cost - total potential cost relative to industry/market cap peers, measured by estimated Shareholder Value Transfer in relation to peers.
- Plan Features – review of problematic plan terms (e.g., single-trigger change in control vesting, discretionary vesting authority, liberal share recycling, minimum vesting periods).
- Equity Grant Practices – relative burn rate, vesting terms in most recent CEO grants, estimate plan duration, portion of CEO’s most recent equity grants subject to perfomance conditions, clawback policy, post-exercise/vesting holding requirements.
Emerson’s shareholder proposal to approve the plan, which can be found here, seems drafted with an eye to the Equity Plan Scorecard. In particular, the proposal points out that:
- The plan will have enough shares to last through the next two performance cycles (October, 2015 and October, 2018).
- The company has reduced it’s weighted average diluted shares via share repurchases. The plan incorporates key ISS best practices concerning minimum vesting periods, clawbacks, double-trigger change in control provisions.
- The plan does not allow liberal share counting or contain a liberal change in control definition.
- The company’s grant practices should be viewed favorably under ISS standards.
It will be intersting to see if companies use the ISS Equity Plan Scorecard as a rubric of sorts when drafting equity plan shareholder proposals. Emerson’s proposal certainly touched on many ISS key issues and appears to have been embraced by shareholders.