As I blogged last week, ISS published 20 FAQs on its New Equity Plan Scorecard (EPSC), effective for stock incentive plans for which a company seeks shareholder approval on or after February 1, 2015. This is the final installment on the FAQs. However, ISS is trickling out clarifications of some of the FAQs, so we may blog again. For example, since our first blog on the FAQs, we have learned that ISS will run its analysis of the Plan’s/Company's Shareholder Value Transfer (SVT) relative to peers under the Plan Cost pillar (described in Part 2) even though a company is not seeking approval of additional shares, which is different than FAQ 20 suggests.
Under the EPSC, maximum points are accrued for plan durations of five years or less. ISS will calculate plan duration as the sum of shares remaining available and new shares requested, divided by the three-year average annual burn rate shares, which is how long ISS estimates the company’s requested share pool will last.
Plans Seeking Approval for 162(m) Only
ISS generally will give a favorable recommendation to proposals that only seek approval to ensure tax deductibility of awards pursuant to Section 162(m) and do not seek additional shares for grants, regardless of EPSC factors, as long as the Compensation Committee is 100% independent according to ISS standards. However, ISS will apply the full EPSC evaluation where a company is seeking Section 162(m) approval for the first time after its IPO or emergence from bankruptcy (i.e., the first time that public shareholders have an opportunity to weigh in on the plan).
Non-Employee Director Plans
ISS will not apply the EPSC to stand-alone non-employee director plans for which the company is requesting shareholder approval, except that, when the company is seeking approval of another stock plan proposal in the proxy, ISS will include the shares available for grant under a non-employee director plan into the Plan Cost evaluation for that plan.