The Advisors' Blog

It’s hard to believe that the ISS Equity Plan Scorecard has been around for only eight years. Given the prominent role it plays in submitting equity plans for shareholder approval, it feels like it’s been here forever. This recent blog from ISS Corporate Solutions takes a closer look at the “Plan Features” & “Grant Practices” pillars – both of which are intended to balance shareholder protection interests with flexibility for plan administrators. Specifically:

Plan Features: one factor in evaluating the “Plan Features” pillar is minimum vesting. Most companies stipulate a minimum vesting period of a certain number of years from the date of grant of an award where the minimum criteria apply. While these vesting requirements apply to all award types as stipulated in the plan, some plans allow for a carve-out for a certain number of shares where these restrictions do not apply and the administering committee may establish lesser restrictions or none at all. Typically, the carve-out applies to 5% of the shares authorized for issue.

Grant Practices: Another place where shareholder comfort and administrator flexibility intersect is on the topic of post-exercise/post-vesting shareholding requirements. Some administering committees think of holding periods as fixed time periods necessary to attain minimum ownership levels.

In that view, a company may specify that a newly hired or promoted executive has a certain number of years to attain the ownership levels that are set. If an executive officer fails to meet that target, he/she may be required to hold a minimum of the net shares resulting from any future vesting of equity-based awards until the minimum ownership guidelines are met. Through this approach, holding periods can be used as a vehicle to accelerate the attainment of minimum ownership levels.

… Administering committees have flexibility to adopt palatable alternatives like 12-month post-exercise or post-vesting holding period or hold-to-end of employment/retirement policies which in turn translate into a longer-term view on stock price performance that would be welcomed by shareholders.

The blog gives example disclosures for each of these items. Make sure to also check out Chapter 15 of Lynn & Borges Executive Compensation Disclosure Treatise for more guidance on ISS’s Equity Plan Scorecard and all of the disclosure that’s required when you’re submitting a plan for shareholder approval.

– Liz Dunshee