November 19, 2024
ISS Launches Comment Period on Benchmark Voting Policies
Yesterday, ISS announced the launch of its open comment period on proposed changes to its benchmark voting policies. During this open comment period, ISS gathers views from stakeholders on its proposed voting policy changes for 2025 (and beyond). The comment period closes at 5:00 p.m. Eastern time on December 2.
It looks like 2025 will be another light year for benchmark policy changes. The main substantive policy updates address poison pills and SPAC extension requests. However, ISS also provided a summary of ongoing considerations related to U.S. executive compensation policy on the use of performance- vs. time-based equity awards, including a planned change in policy application for 2025 (under the current policy). Here’s more:
The current pay-for-performance assessment for executive compensation under ISS U.S. benchmark policy considers a predominance of time-vesting (as opposed to performance-vesting) equity awards to be a significant concern at a company that exhibits a quantitative pay-for-performance misalignment. However, a growing number of investors have expressed changing viewpoints regarding U.S. equity award practices. Some investors highlight concerns with performance equity programs that may be poorly designed and/or disclosed, including concerns about highly complex programs and non-rigorous performance measures, and some consider that well-designed timevesting awards are preferable to performance-vesting awards.
These changing viewpoints were demonstrated by the results of a question in the 2024 Global Benchmark Policy Survey. … Considering the various feedback and arguments put forward, a potential policy update remains under consideration for 2026 (or later) regarding the evaluation of the equity pay mix for regular-cycle equity awards whereby a preponderance of time-vesting equity awards generally would not in itself raise significant concerns in the qualitative review of pay programs.
For 2025 and in advance of any potential wider policy changes for 2026, we intend to implement certain pay-for-performance policy application changes that do not require formal policy changes at this time but are adaptations within the current U.S benchmark policy framework. …
Effective for 2025 (for meetings on or after Feb. 1, 2025), we will introduce adaptations to the qualitative review of performance-vesting equity awards carried out under the current U.S. benchmark policy. Specifically, any design or disclosure concerns regarding performance equity will carry greater weight in the qualitative analysis, and significant concerns in these areas will be more likely to drive an adverse say-on-pay recommendation for a company that exhibits a quantitative pay-for-performance misalignment. Further details on the changes will be provided in an update to ISS’ U.S. Executive Compensation Policies FAQ, expected to be published in mid-December 2024.
They invite additional feedback on the following questions:
– If, in the future, U.S benchmark policy were to no longer view a predominance of time-vesting equity awards as concerning in itself, what criteria would you consider most important for analyzing time-vesting equity awards? (for example, vesting periods, award magnitude, holding period requirements, or any other significant factors)
– If U.S. benchmark policy were to no longer view a predominance of regular-cycle time-vesting equity awards as concerning, do you believe the same standard should be applied to any off-cycle/one-time equity awards?
– Meredith Ervine