Live! From Silicon Valley, where I spoke to the SV Chapter of NASPP on “Changes to Your Equity Plan Documents to Reduce Risk (Thirty-Five Changes to Avoid Unwanted Outcomes),” ISS is launching Governance QuickScore 3.0 this week, which ISS uses to assess governance practices at public companies, replacing QuickScore 2.0. QuickScore 3.0 adds five new factors to the QuickScore 2.0 list, including:

  1. Does the company disclose a policy requiring an annual performance evaluation of the board?
  2. Has the board failed to implement a shareholder resolution supported by a majority vote, or failed to address the issue underlying majority director withhold votes?
  3. Has ISS’ review found that the Board of Directors recently took action that materially reduces shareholder rights?
  4. Is there a sunset provision on the company’s unequal voting structure?
  5. Does the company have a controlling shareholder?

The new QuickScore 3.0 also revises a number of the factors from the current QuickScore 2.0, as follows:

  • Has a regulator initiated enforcement action against the company in the past two years? (This factor used to refer only to securities regulators.)
  • Has a regulator initiated enforcement action against a director or officer of the company in the past two years? (This factor used to refer only to securities regulators.)
  • What percentage of directors received shareholder approval rates below 80%? (This factor used to say below the “industry-index level.”)
  • Does the company’s average three-year equity grant rate exceed the greater of two percent and the average of its industry/index peers? (This factor used to refer to grant of awards at “excessive rate.”)
  • Did the most recent Say on Pay proposal receive shareholders’ support below 70%? (This factor used to say “below the industry-index level.”)

Finally, ISS now will score two former “zero-weight” questions under QuickScore 3.0:

  • How many women are on the board?
  • How many financial experts serve on the audit committee?

Companies should seriously consider reviewing the new factors, as well as the old, to determine their effect and may want to address these new or revised factors in proxy disclosure.

The full list of 32 factors relating to executive compensation for U.S. companies in ISS QuickScore 3.0 is as follows:

113     Does the company disclose a performance measure for the short term incentive plan (for executives)?

129     Do the company's active equity plans prohibit share recycling for options/SARS?

130     Does the company's average 3-year equity grant rate exceed the greater of 2 percent and the average of its industry/index peers?

131     What are the vesting periods mandated in the plan documents for executives' stock options or SARS in the equity plans adopted/amended in the last 3 years?

132     What are the vesting periods mandated in the plan documents, adopted/amended in the last three years, for executives' restricted stock / stock awards?

134     What is the holding/retention period for stock options (for executives)?

135     What is the holding/retention period for restricted shares / stock awards (for executives)?

138     Do the company's active equity plans prohibit option/ SAR repricing?

139     Has the company repriced options or exchanged them for shares, options or cash without shareholder approval in the last three years?

145     What proportion of the salary is subject to stock ownership requirements/guidelines for the CEO?

148     What's the trigger under the change-in-control agreements?

153     Do equity based plans or other long term awards vest completely upon a change in control?

155     Did the company disclose a claw back or malus provision?

156     Are any of the NEOs eligible for multi-year guaranteed bonuses?

161     What is the multiple of pay in the severance agreements for the CEO (upon a change-in-control)?

162     Does the company provide excise tax gross-ups for change-in-control payments?

163     What is the length of employment agreement with the CEO?*

226     What is the degree of alignment between the company's cumulative 3-year pay percentile rank, relative to peers, and its 3-year cumulative TSR rank, relative to peers?*

227     What is the degree of alignment between the company's 1-year pay percentile rank, relative to peers, and its 1-year TSR rank, relative to peers?*

228     What is the size of the CEO's 1-year pay, as a multiple of the median pay for company peers?

229     What is the degree of alignment between the company's TSR and change in CEO pay over the past five years?

232     What is the ratio of the CEO's total compensation to the next highest paid executive?

237     What is the ratio of the CEO's non-performance-based compensation (All Other Compensation) to Base Salary?

238     Does the company's active equity plans prohibit option/SAR cash buyouts?

239     Do the company's active equity plans have an evergreen provision?

240     Do the company's active equity plans have a liberal CIC definition?

246     What is the level of disclosure on performance measures for the latest active or proposed long term incentive plan

247     What is the basis for the change-in-control or severance payment for the CEO?

300     Has ISS' qualitative review identified a pay-for-performance misalignment?

301     Has ISS identified a problematic pay practice or policy that raise concerns?

328     Did the most recent Say on Pay proposal receive shareholders' support below 70%?

329     What is the degree of alignment between the company's annualized 3-year pay percentile rank, relative to peers, and its 3-year annualized TSR rank, relative to peers?