On November 21, ISS issued its proxy voting policy updates for 2014, including some modest changes to its policies regarding executive compensation.
- First, in response to investor feedback that its 2013 policy was too strict, ISS will now make recommendations on director nominees of companies that fail to implement majority-supported shareholder proposals on a "case by case" basis, and will also take into account the board's explanation for failing to implement a proposal as a factor in the recommendation. Although most compensation-related proposals fail to garner majority support, a clawback proposal at McKesson Corporation won majority support earlier this year.
- Second, to reduce the emphasis on one-year TSR under the "relative alignment" prong of its "pay-for-performance" methodoogy for evaluating CEO pay, ISS will now compare CEO pay rank vs. TSR rank within a company's peer group over a trailing three-year period alone, instead of (as previously) over both trailing one- and three-year periods (weighted 40%/60%, respectively). One of the ways in which this change should be helpful to companies is by reducing the potential impact of an equity award made at the start of the prior year, before the company's TSR performance for the year is known.
The updates are effective for shareholder meetings to be held on or after February 1, 2014.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
