On November 21, ISS published its 2017 Proxy Voting Guideline Updates, which will be in effect for meetings held on or after February 1, 2017. The US 2017 updates cover numerous policies, with significant changes summarized below:
Restricting Binding Shareholder Proposals
ISS introduced a new policy to recommend against or withhold from members of the governance committee if a company’s charter imposes undue restrictions on shareholders’ ability to amend its bylaws. Such restrictions include outright prohibition on the submission of binding shareholder proposals, or share ownership requirements or time holding requirements in excess of SEC Rule 14a-8.
Shareholder Ratification of Director Pay Programs
ISS introduced a new policy and will recommend a vote on a case-by-case basis on management proposals seeking ratification of non-employee director compensation, relying on the following factors:
- if the equity plan under which non-employee director grants are made is on the ballot, whether or not it warrants support; and
- an assessment of the following qualitative factors:
- the relative magnitude of director compensation as compared to companies of a similar profile;
- the presence of problematic pay practices relating to director compensation;
- director stock ownership guidelines and holding requirements;
- equity award vesting schedules;
- the mix of cash and equity-based compensation;
- meaningful limits on director compensation;
- the availability of retirement benefits or perquisites; and
- the quality of disclosure surrounding director compensation.
ISS changed its policy to recommend a vote against or withhold from an individual director who sits on more than five public company boards or is a CEO of a public company who sits on the boards of more than two public companies besides his/her own.
Equity Plan Scorecard
ISS added an additional factor to its U.S. Equity Plan Scorecard policy and made a few minor changes to its policies for certain equity based compensation plans. Under a new factor, full points will be earned if an equity plan expressly prohibits for all award types the payment of dividends before the vesting of the underlying award, although accrual of dividends payable upon vesting is acceptable. No points will be earned if this prohibition is absent or incomplete. A company’s general practice, not enumerated in the plan document, of not paying dividends until vesting will not suffice. In addition, an equity plan must specify a minimum vesting period of one year for all award types under the plan in order to receive full points for this factor, and no points will be earned if a plan allows for individual award agreements that reduce or eliminate the one-year vesting requirement.
Unilateral Bylaw/Charter Amendments
For newly public companies, ISS changed its policy and will generally recommend a vote against or withhold from directors individually, committee members or the entire board if, prior to or in connection with company’s public offering, the company or its board adopted bylaw or charter provisions materially adverse to shareholder rights, or implemented a multi-class capital structure in which the classes have unequal voting rights. A vote by shareholders within three years on such shareholder rights will now be insufficient; a sunset provision in the charter documents will be necessary.
The full text of the ISS 2017 Proxy Voting Guideline Updates is available here.