A few days ago, ISS issued this press release announcing the updating of its voting policies, for annual meetings held on or after February 1, 2025. Here is the complete set of ISS benchmark voting policies.
There is not much this year in the way of change. The few changes are listed in this executive summary and this “updates” document. For the US, the policy changes relate to poison pills, SPAC extensions and natural capital.
More notable is that ISS updated its FAQs on executive compensation policies last week, which follows an update of these FAQs a few months ago. The new and materially updated FAQs are highlighted in yellow – including FAQ 24 (computation of realizable pay); FAQ 34 (adaptations for P4P qualitative reviews); and FAQ 39 (program metrics evaluation) and FAQ 42 (in-flight program changes).
The most significant change probably is new FAQ 34, which states:
“ISS previously announced adaptations to the pay-for-performance qualitative review effective for the 2025 proxy season, relating to the evaluation of performance-vesting equity awards. What does this entail? (Question 34)
Beginning with the 2025 proxy season, ISS will place a greater focus on performance-vesting equity disclosure and design aspects, particularly for companies that exhibit a quantitative pay-for-performance misalignment. While ISS has historically analyzed the disclosure and design of incentive programs as part of the qualitative review, investors have increasingly expressed concerns with the potential pitfalls surrounding performance equity programs.
As such, existing qualitative considerations around performance equity programs going forward will be subject to greater scrutiny in the context of a quantitative pay-for-performance misalignment. Typical considerations include the following non-exhaustive list:
– Non-disclosure of forward-looking goals (note: retrospective disclosure of goals at the end of the performance period will carry less mitigating weight than it has in prior years);
– Poor disclosure of closing-cycle vesting results;
– Poor disclosure of the rationale for metric changes, metric adjustments or program design;
– Unusually large pay opportunities, including maximum vesting opportunities;
– Non-rigorous goals that do not appear to strongly incentivize for outperformance; and/or
– Overly complex performance equity structures.
Multiple concerns identified with respect to performance equity programs will be more likely to result in an adverse vote recommendation in the context of a quantitative pay-for-performance misalignment.”
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