This month, Institutional Shareholder Services Inc. (ISS) issued its 2015 Proxy Voting Guidelines for the upcoming proxy season, which include the new "Equity Plan Scorecard." As stated by ISS in connection with its October 15, 2014 draft policy, the "scorecard" policy is intended to provide for a more nuanced approach to the evaluation of equity compensation plan proposals and to replace the existing "pass/fail" framework used by ISS. The new policy will be applicable to all 2015 equity plan proposals.
Under the new policy, ISS will issue "for" or "against" voting recommendations on equity plan proposals by determining a score for a company's proposal based on three broad categories of factors:
- Plan Cost. The scorecard will compare the total potential cost of the company's equity plans relative to its industry/market cap peers (measured by Shareholder Value Transfer).
- Features of the Plan. The scorecard will evaluate the features of the company's equity plan, including single-trigger vesting, discretionary voting authority, liberal share recycling features, and minimum vesting periods for grants.
- Equity Grant Practices. The scorecard will consider the company's equity grant practices, including burn rate relative to peers, the estimated duration of the plan, whether the company has established a clawback policy, whether the company has established post exercise/vesting share-holding requirements, and features of recent grants to the company's chief executive officer.
The above factors and weightings will be keyed to company size and status, to be broken up between S&P 500, Russell 3000 (excluding the S&P 500), Non-Russell 3000, and Recent IPOs or Bankruptcy Emergent companies. ISS previously indicated that it does not intend for the "scorecard" policy to affect the number of companies receiving adverse votes on equity plan proposals. Instead, ISS indicated that the proposed scoring approach will allow for evaluation of equity plan proposals in the range of best practices.