January 9, 2023
ISS Updates FAQs for Equity Plans and Compensation Policies
On December 16th, ISS issued a new set of Equity Plan FAQs and a new set of Compensation Policies FAQs. This Edward Hauder Blog summarizes the changes. Here are a couple of excerpts from the blog that provide an overview of the changes:
Equity Compensation Plan FAQs. ISS announced several changes, including how it will determine the common shares outstanding (CSO) when there are economic proposals such as mergers or acquisitions that are on the agenda, how burn rate will be considered (including the new Value Adjusted Burn Rate methodology), implications of a change in index membership or GICS classification within the last three years, and changes with respect to the Equity Plan Scorecard (EPSC) model.
Compensation Policies FAQs. ISS indicates that there will be no changes to any of the quantitative pay-for-performance (P4P) screens for 2023 used to inform its Say-on-Pay (SOP) vote recommendations. However, ISS did change how it will use its Financial Performance Assessment (FPA) measure in 2023 by expanding the number of situations that it can be used to change the ultimate P4P concern level. Starting February 1, 2023, ISS can use FPA result to not only move a low bordering medium concern company to a medium concern or a medium concern company to a low concern, ISS will be able to move concern down to medium for certain high concern companies and up to high concern for certain medium concern companies.
The blog points out an additional point worth noting concerning how ISS will use the FPA result – since FPA is a proprietary ISS and it has not fully disclosed how it calculates these amounts, companies will have a very difficult time determining their FPA score and how it will impact ISS’s assessment of their P4P concern level. In turn, that’s going to make it harder for these companies to assess what recommendation ISS will make on their say-on-pay proposal.
– John Jenkins