Last month, Institutional Shareholder Services (ISS) updated its proxy voting guidelines for the upcoming proxy season. The updates, summarized in part below, are effective for shareholder meetings on or after Feb. 1, 2018.
- Non-Employee Director Compensation: ISS added a new policy whereby it will provide adverse recommendations for board and committee members responsible for approving non-employee director compensation when there is a recurring pattern (two or more consecutive years) of excessive pay without a compelling rationale or other mitigating factors. Due to the two-year pattern standard, however, this new policy will not affect vote recommendations in 2018.
- Board Diversity: ISS revised its guidelines to highlight boards with no gender diversity. However, lack of gender diversity will not lead to an adverse vote recommendation. ISS also revised its “fundamental principles” to include a statement that boards should be sufficiently diverse to ensure consideration of a wide range of perspectives.
- Pay-for-Performance Methodology: In connection with its annual pay-for-performance analysis, ISS will now consider CEO rankings of total pay and company performance compared to a peer group over a three-year period.
- Company Stock Pledging: Significant levels of company stock pledged by executives or directors will result in a vote against the committee members overseeing risks related to pledging, or the full board, if such levels raise concerns. In weighing this aspect, ISS will evaluate the presence of any anti-pledging policies disclosed in the proxy statement that prohibit future pledging activity, disclosure in the proxy statement that shares subject to stock ownership and holding requirements do not include pledged company stock, and any other relevant factors.
- Shareholder Engagement: ISS will now consider a company’s disclosure regarding shareholder engagement efforts in determining whether to recommend against compensation committee members whose “say-on-pay” proposals received less than 70 percent of votes cast. Examples of factors ISS will review in making its recommendation include the level of detail of such disclosures, whether a company discloses the timing and frequency of engagements with major institutional investors and the extent (if any) to which independent directors participate; disclosure of specific concerns voiced by dissenting shareholders that led to a say-on-pay opposition; and disclosure of specific and meaningful actions taken to address shareholders’ concerns.