The Advisors' Blog

This Alliance Advisors memo gives an interesting data point for anyone who is sweating out an equity plan replenishment proposal for the second (or third or fourth) year in a row:

If going back for shares two years in a row caused companies to lose support on their equity plan proposals, then surely a company that asked shareholders to approve a new share increase six consecutive years would face a significant increase in ‘against’ votes over time.

Alliance Advisors found twelve members of the Russell 3000 had proposed new or amended equity incentive plans each year from 2018 to 2023. Alliance Advisors analyzed each of those proposals and determined there is no evidence of a change in shareholder support as a result of repeated equity plan replenishments.

Phew! The memo also offers this practice point if your equity plan proposal involves replacing your old plan with a new one:

– Commitments needed to secure ISS support when replacing an existing equity plan. When companies seek approval of a new equity plan and intend to terminate and cancel the remaining shares available in an existing equity plan, proxy disclosures need to be clear on this intention. Otherwise, ISS may include the remaining shares available under the old plan in its calculation of plan costs (termed shareholder value transfer, or SVT, by ISS). This would render the plan more costly and negatively impact scoring under the Equity Plan Scorecard (EPSC) – ISS’ tool for analyzing employee stock incentive programs.

A few years ago, ISS revised its policy to require an explicit commitment that: (a) no further shares will be granted under the existing plan unless the successor plan is not approved, or (b) the number of shares available under the successor plan will be reduced by shares granted under the existing plan prior to the successor plan’s approval.

If you have this type of proposal on the ballot and didn’t include the “magic language,” there may still be time to do so in a supplemental filing before ISS issues its report. Obviously, whether and when you need to act on this depends on your meeting date. And, as Alliance points out, there are cases where a negative ISS recommendation won’t sink your ship. The memo notes that while investors may use proxy advisor recommendations as a factor in their decision, they often have their own formulas (which may be more stringent). You always need to know your shareholder base.

Check out the full memo for more tips for getting this year’s equity plan proposals across the finish line.

– Liz Dunshee