Today, ISS launched its two-week consultation period on potential updates to its benchmark voting policy for 2018, allowing interested parties—including companies, investors, advisors, and others—to submit comments on the draft policies through 5:00 p.m. (Eastern) on November 9. The draft includes new proposals on “Non-employee Director Pay” and the “Gender Pay Gap.”
Non-Employee Director (NED) Compensation Pay
ISS observes (as this blog has been discussing for four years now) that non-employee director (NED) compensation has come into the corporate governance spotlight in recent years, with the median NED pay at S&P 1500 firms standing at approximately $211,000 in 2016. ISS’ proposed new policy would explicitly provide for adverse vote recommendations for board committee members who are responsible for approving/setting NED compensation when there are two or more consecutive years of excessive NED pay magnitude without a compelling rationale or other mitigating factors. ISS specifically asks for comments on the following three issues:
- The circumstances for which large NED pay magnitude would merit support on an exceptional basis (e.g., one-time onboarding grants to new directors),
- Which board members should be held accountable if a company’s proxy disclosure does not clearly indicate which board committee is responsible for setting and/or approving director pay, and
- Whether it should include outsized pay packages provided to NED board chairs, lead directors, or other board members in calculating average/median pay.
Gender Pay Gap Shareholder Proposals
ISS observes that in the past three years, shareholders have increasingly filed more resolutions requesting that companies report whether a gender pay gap exists, and if so, what measures will be taken to address the gap. Under its proposed new policy, ISS generally would review requests for reports on a company’s pay data by gender, or a report on a company’s policies and goals to reduce any gender pay gap, taking into account three factors:
- The company's current policies and disclosure related to both its diversity and inclusion policies and practices and its compensation philosophy and fair and equitable compensation practices,
- Whether the company has been the subject of recent controversy or litigation related to gender pay gap issues, and
- Whether the company’s reporting regarding gender pay gap policies or initiatives is lagging its peers.
ISS specifically asks for comments on whether there are other factors it should consider when assessing proposals requesting disclosure on a company’s gender pay gap.
As usual, ISS expects that final policy updates will be announced during the second half of November. Additionally, ISS will announce certain other policy application matters, such as burn rate thresholds and pay for performance quantitative concern thresholds, through updated FAQs in mid-December.
If adopted, these policies would take effect for meetings on or after February 1, 2018. However, there would be no impact on vote recommendations in 2018 for directors as a result of the proposed NED policy.