On Monday, October 21, ISS issued its key draft policy changes for 2014 and opened a comment period to allow companies and investors to comment. We will be able to submit comments through 3 p.m. (Eastern) on Monday, November 4, 2013. The proposals, which would take effect for annual shareholder meetings on and after February 1, 2014 (if ISS adopts them), make two potentially significant changes.
- Pay for Performance Quantitative Screen: ISS is proposing to change the Relative Degree of Alignment (RDA) metric to evenly weight the impacts of each of the past three years’ performance and compensation. In the past, the RDA metric emphasized the most recent year of performance and compensation data. ISS is still working to identify where to set the thresholds for medium and high levels of quantitative concern.
- Board Responsiveness to Shareholder Proposals: ISS is proposing to base part of its director election vote recommendations on the Board’s responsiveness to majority-supported shareholder proposals. ISS will explicitly consider the board’s expressed rationale for acting, or failing to act, on majority-supported shareholder proposals. The vote recommendation itself will continue to be on a case-by-case basis.
As I discussed in yesterday’s blog, most shareholder proposals on executive compensation do notachieve majority support. However, this second proposed change emphasizes the importance of the shareholder proposal issues that I discussed in yesterday’s blog, “Be Prepared for Shareholder Proposals on Executive Compensation.