The Advisors' Blog

Earlier this month, ISS issued an off-cycle update to its FAQs on executive compensation policies (another update will be published in December). The release adds two Q&As, which relate to:

– Will there be forthcoming changes to ISS’s realizable pay methodology for 2025 meetings? Yes, but only for companies that have experienced 2 or more CEO changes within the applicable 3-year window. For those companies, ISS will no longer display a realizable pay chart.

– What is needed in order for ISS to consider a clawback policy “robust,” as displayed in the “Executive Compensation Analysis” section of the resource report? In order to receive credit for a “robust” clawback policy in the “Executive Compensation Analysis” section of the research report, a company’s clawback policy must extend beyond minimum Dodd-Frank requirements and explicitly cover all time-vesting equity awards. A clawback policy that adheres only to minimum Dodd-Frank requirements will not be considered robust, because those requirements generally do not cover all time-vesting equity awards.

This Cooley alert takes a closer look at the implications for the clawback FAQ. Here’s an excerpt:

Many companies do not go beyond the minimum Dodd-Frank requirements. Regardless, it appears that – going forward – a clawback policy that does not apply to time-based awards will be viewed negatively by ISS in determining its SOP vote recommendation, though it is not clear how much weight will be given to this factor.

We continue to think that while companies should periodically revisit their clawback policies and take this new ISS position into account as another factor in the overall calculus, the guiding principle should be to ensure that the policy remains appropriate and best serves its purpose in the company’s particular circumstances.

The Cooley team points out that the new FAQ is consistent with ISS’s existing position under its Equity Plan Scorecard, where an equity plan will not receive points under the clawback policy metric unless the policy applies to both time- and performance-based awards. But now this concept applies to say-on-pay recommendations as well.

– Liz Dunshee