In Aug. 2016, Institutional Shareholder Services, or ISS, issued its policy survey for the 2017 proxy season. Typically, the survey is a lead indicator of key issues being considered by ISS. The following is a brief overview of the main questions included in this year’s survey.
- Board Refreshment and Tenure. The survey asks for input as to whether director tenure raises issues concerning a board’s refreshment and nominating process. It asks whether certain factors, including the average tenure of the board, the proportion of the board having long tenures, and the absence of new independent directors, might have an impact on that process.
- Overboarding of Executive Chairs. Overboarding refers to instances when a director or executive sits on an excessive number of public company boards of directors. Currently, the overboarding policy differentiates between a non-executive director, who is considered overboarded if he sits on more than 5 boards, and a CEO, who is considered overboarded if he sits on more than 3 boards. The survey asks whether non-CEO executive chairs should be subject to the non-executive director standard, or the more restrictive CEO standard.
- IPO Dual Class Structures. The survey asks whether ISS should recommend voting against directors that, in connection with an IPO or in post-bankruptcy, adopt structures with multiple classes of stock that have different voting rights.
- Metrics to Evaluate Executive Compensation. While ISS currently uses total shareholder return to analyze the relationship between CEO pay and company performance, the survey asks whether other metrics should also be considered, including revenue, earnings, returns, and cash flow.
- Say-on-Frequency. The survey asks whether “say-on-pay” votes shall be held every one, two, or three years, and whether certain factors, such as company size, financial performance, and prior shareholder support for say-on-pay, should play a part in this frequency analysis.
- Cross-border Executive Pay. The survey asks how ISS should evaluate situations where international companies conduct multiple say-on-pay votes due to the applicable legal requirements of different jurisdictions. More specifically, it asks whether it is acceptable to have opposing vote recommendations based on different countries’ policies.
Survey results are typically published near the end of September, and final policy updates are normally released in November. All final policies will be implemented on Feb. 1, 2017.