Well, that is not exactly what ISS and Glass Lewis recently announced, but close. We have posted several times this year on the SEC’s increasing to the threshold for which companies may qualify as a Smaller Reporting Company and, thus, qualify for less stringent proxy statement reporting rules. This was very good news for many smaller companies as it will make the completion of their 2019 proxy statements simpler and cheaper. But in its recently released Compensation FAQs, ISS is playing the Grinch.
50. If a company becomes a “smaller reporting company” under the SEC's revised definition, how will ISS assess reduction in compensation disclosure?
The SEC recently changed the definition of a “smaller reporting company” (SRC) that will expand the number of companies qualifying as an SRC. While SRCs have scaled-back compensation disclosure requirements, they are still required to hold say-on-pay votes. Completeness of disclosure is an important pay-for-performance consideration. Companies with scaled compensation disclosure requirements should continue to provide sufficient disclosure to enable investors to make an informed say-on-pay vote. ISS is unlikely to support a say-on-pay proposal if compensation disclosure is such that shareholders cannot meaningfully assess the board’s compensation philosophy and practices. [Emphasis added]
Previously, Glass Lewis declared that it will review year-on-year CD&A texts of an SRC to determine if disclosure substantially decreased. In such cases, a vote recommendation against entire compensation committee may result.
Okay, I may be having a little fun by exaggerating the truculence of ISS and Glass Lewis, but every SRC should take these warnings to heart in drafting their CD&As in the upcoming year.