Institutional Shareholder Services Inc. (“ISS”), a leading proxy advisory firm, recently updated its Executive Compensation Policy Frequently Asked Questions (“FAQs”). A full link to the ISS guidance can be found here.
Below we summarize ISS’ updated guidance:
- Consistent with one of my prior posts, the updated FAQ re-emphasizes that a “robust” clawback policy must extend beyond minimum Dodd-Frank requirements and explicitly cover all time-vesting equity awards.
- ISS has updated its methodology for calculating “realizable pay” and clarifies that realizable pay includes all non-incentive compensation paid, the value of cash or equity incentive awards earned or, if awards are on-going, revalued at target level at the end of the performance measurement period.
- ISS indicates that it will place a greater emphasis on performance-vesting equity disclosures and the design aspects of performance-vesting programs, particularly where there is a pay-for-performance misalignment. Items that might lead to a negative vote recommendation include but are not limited to: (i) non-disclosure of forward-looking goals, (ii) poor disclosure of closing cycle vesting results, (iii) poor disclosure of the rationale for changing metrics, (iv) unusually large pay opportunities, (v) non-rigorous goals, and (vi) overly complex performance structures.
- ISS clarifies that it does not endorse or prefer the use of TSR or any specific metric in issuers’ executive compensation plans.
- If an incentive program is changed mid-cycle, ISS will generally view the changes negatively. Issuers must provide clear and compelling rationale for change and explain how any such changes do not circumvent pay-for-performance outcomes.
If you are an issuer preparing for the 2025 proxy season, including making changes to your incentive plan structure, please consider reviewing the updates to the FAQs in connection with the preparation of your proxy disclosure.
