It’s September, welcome back to “school.” As we all begin to prepare for setting 2017 compensation and the 2017 proxy season, among the issues that executives and compensation professionals should consider—and consider raising with compensation committees—is the subtle change ISS made to its policies for executive compensation early this year. This change appeared in the January 2016 FAQs, but that was too late for most companies to do anything about it. However, the change will be fully effective for the upcoming proxy season.

65. Would a legacy employment agreement that is automatically extended (e.g., has an evergreen feature) but is not otherwise amended warrant an adverse vote recommendation if it contains a problematic pay practice?

Automatically renewing/extending agreements (including agreements that do not specify any term) are not considered a best practice, and existence of a problematic practice in such a contract is a concern. However, if an “evergreen” employment agreement is not materially amended in manner contrary to shareholder interests, it will be evaluated on a holistic basis, considering a company’s other compensation practices along with features in the existing agreement.

Companies and committees should be conscious of the fact that ISS is taking a firmer approach to problematic pay practices in “grandfathered” agreements, including “evergreen” agreements with problematic pay practices. In fact, the 2016 U.S. Executive Compensation Policies’ Frequently Asked Questions does not include the phrase “grandfathered.”