The Advisors' Blog

– Lynn Jokela

Last week, ISS released the results of its annual policy survey, which is part of its process in formulating next year’s proxy voting policies.   In short, investors expressed a desire for clear disclosure about the pandemic’s impact on compensation decisions and non-investors expressed a need for flexibility in making adjustments to performance expectations and related changes to executive compensation in addition to expressing a need for clear disclosure of such decisions.  Here’s an excerpt with the responses to questions involving executive compensation – John also blogged on TheCorporateCounsel.net about other results from the survey:

– Expectations regarding compensation adjustments: When asked about the respondent’s viewpoint regarding executive compensation in the wake of the pandemic, a significant majority of investor respondents – 70% – indicated that the pandemic’s impact on the economy, employees, customers and communities and the role of government-sponsored loans and other benefits must be considered by boards, incorporated thoughtfully into compensation decisions to adjust pay and performance expectations, and should be clearly disclosed to shareholders. Among non-investors, a majority – 53% -indicated that the pandemic is different from previous market downturns and many boards and compensation committees will need flexibility to make decisions regarding reasonable adjustments to performance expectations and related changes to executive compensation.

– Adjustments to short-term/annual incentive programs: Regarding short-term/annual incentive programs and the respondents’ views on what is a reasonable company response under most circumstances, slightly over one-half of both investors – 51% – and non-investors – 54% – indicated that both (1) making mid-year changes to annual incentive metrics, performance targets and/or measurement periods to reflect the changed economic realities; and (2) suspending the annual incentive program and instead making one-time awards based on committee discretion could be reasonable, depending on circumstances and the justification provided.