The Advisors' Blog

– Broc Romanek, CompensationStandards.com

Here’s an excerpt from this Towers Watson memo:

Looking back a year, companies that expected to submit an equity plan for shareholder approval in early 2015 were wondering if Institutional Shareholder Services’ (ISS’s) new Equity Plan Scorecard (EPSC) methodology would make their votes (and vote preparations) more challenging. With the 2015 proxy season in the rear view mirror, shareholders have spoken (and voted) and the results we’ve seen at S&P 1500 companies as of mid-August reveal that a few key indicators of success have trended higher:

– Average shareholder support in equity plan votes increased slightly, from 87% in 2014 to 90% in 2015.

– Only one company failed to receive majority support for an equity plan, for a failure rate of 0.03% this year compared to 0.9% (three companies) in 2014.

This modest increase in favorable outcomes is notable in a year in which ISS updated its methodology, the first major revamp in nearly a decade, and even more so when we consider that the level of negative ISS vote recommendations on equity plans stayed consistent with 2014, at 12%. The 2015 voting outcomes suggest that the EPSC methodology gave companies greater flexibility to structure key equity plan provisions and appropriately size their share requests.

With this added flexibility, however, came greater accountability as companies in our experience devoted much more preparation and analysis time for this year’s equity plan proposals, including more outreach to shareholders to understand individual voting policies and decision points. Additionally and equally as important, many companies took the opportunity to enhance their proxy disclosures to tell a more complete story around the share request. In short, the equity plan proposal enhancements we saw this year somewhat mirror the evolution of the Compensation Discussion and Analysis in recent years as a result of say-on-pay votes.