By now, most readers know that ISS is “requiring” that equity incentive plans provide a one-year minimum vesting period for all awards. The plan’s language must preclude the possibility of awards vesting prior to one-year from the grant date. Ratable vesting that allows for partial vesting prior to one-year, or a general statement of ratable vesting over a period of time (e.g., “awards will vest over two years”), will not suffice for this factor, since ratable vesting could be daily, monthly, quarterly, etc. ISS permits up to 5% of the authorized shares under the equity plan to be awarded without a one-year minimum vesting period.
“But Mike,” you say, “our equity plan makes annual awards to non-employee directors at each regular annual shareholders meeting, which on the date of the next annual shareholders meeting, and often the next annual meeting is slightly less than ‘one-year’ away.” Oh, ye of little faith. In its infinite wisdom, ISS allows that the approximately 12-month period between regular annual shareholders meetings will satisfy its requirement, even if slightly less than 365 days. Where applicable, companies should consider clarifying that, for purposes of the equity plan, the term “Directors’ Compensation Year” will mean the approximately one-year period beginning on each regular annual meeting of the Company’s stockholders and ending on the date of the next regular annual meeting of the Company’s stockholders.