The Advisors' Blog

As John noted earlier this week on TheCorporateCounsel.net, ISS has released the results of its benchmark policy survey, which will inform updates to the proxy advisor’s voting policies for the 2025 proxy season. Those updates are typically proposed and open for comment sometime in November/December and finalized towards the end of the year.

I blogged about the compensation-related issues from this year’s survey back in August when it was published. Here are the key takeaways on those questions (also see this Compensation Advisory Partners memo):

– Time-Based Equity Awards with Lengthy Vesting Period: The Survey asked respondents to identify whether ISS should consider the use of time-based equity awards with extended vesting terms as a positive mitigating factor in its pay-for-performance assessment, similar to performance-based awards. The Survey also asks whether ISS should consider equity awards with a meaningful post-vesting holding period as a positive mitigating factor in the context of a pay-for-performance misalignment.

– 43% of investors chose the option to “continue with the current approach” (31% were in favor of a change and 26% fell in the “other response” category)

– 70% of non-investors were in favor of a revised policy where time-based equity awards with extended vesting periods would be considered a positive mitigating factor, similar to performance awards.

– Of those who wanted to revise the current approach, 66% of investors and 58% of non-investors supported a vesting period of “at least five years”

– When asked whether a meaningful post-vesting holding period should be present to consider such awards a positive mitigating factor, 68% of investor respondents said “yes” but 73% of non-investors said “no, a post-vesting holding period requirement is not necessary.”

– Discretionary Annual Incentive Programs: The Survey asked respondents to identify whether largely discretionary annual incentive programs, such as those adopted by some large financial sector companies, are problematic, even if the program structure is consistent with industry and/or peer practice.

– 52% of investors said “yes”

– 38% of non-investors said “no, discretionary programs are not problematic…”

– 31% of non-investors said “sometimes, discretionary programs are only problematic if pay is not aligned with company performance”

– Shareholder Proposals on Workforce Diversity: Currently, ISS will evaluate, on a case-by-case basis, shareholder proposals requesting that a company report on: (i) pay data by gender, race or ethnicity, or (ii) policies and goals to reduce any gender, race or ethnical pay gap taking into account certain factors. The Survey asked respondents to identify whether certain human capital management metrics or disclosures should be considered by investors in evaluating a shareholder proposal on workforce diversity (e.g., EEO-1 data, promotion velocity data, retention rates, hiring rates, adjusted gender pay gap disclosure, unadjusted gender pay gap disclosure, board oversight, etc.).

– For a majority of investors, the “top 3” most relevant metrics/disclosure for the analysis of human capital management shareholder proposals were: (i) Racial/Ethnic Diversity and Gender Representation Data (such as EEO-1 data in the U.S.) (22%); (ii) Board oversight of the human capital management issue raised in the respective shareholder proposal (19%); and (iii) Adjusted (accounting for factors such as job role, education, and experience) Gender Pay Gap Disclosure (14%).

– Non-investors’ “top 3” were: (i) Management oversight of the human capital management issue raised in the respective shareholder proposal (25%); (ii) Racial/Ethnic Diversity in Gender Representation Data (20%); and (iii) Board oversight of the human capital management issue raised in the respective shareholder proposal (20%).

Based on the survey results, it is probably too early to write off the preference for performance-based awards. But the results do also suggest that post-vesting holding periods could be a way to mitigate investor concerns if there is a lack of performance criteria. As always, it’s a good idea to talk with your investors, and if you’re able to get them on board and disclose that support, that may also work in your favor with ISS. We’ll stay tuned for the proposed changes to the benchmark voting policies (if any)!

– Liz Dunshee