Institutional Shareholder Services (ISS) recently released for public comment its 2015 draft voting policies. The draft policies relate to two topics affecting the U.S. market: independent board chair shareholder proposals and equity incentive plan proposals. ISS is accepting comments on the proposed policies until October 29.

Independent Board Chair Proposals

Currently, ISS generally recommends voting “for” shareholder proposals calling for independent board chairs, unless the company satisfies all of the following six criteria:

  • The company designates a lead director, who is elected by and from the independent board members with clearly delineated and comprehensive duties.
  • The board’s membership comprises at least two-thirds independent members.
  • The key board committees are fully independent.
  • The company has disclosed governance guidelines.
  • The company has not exhibited sustained poor total shareholder return (TSR) performance for one- and three-year periods.
  • The company does not have any problematic governance issues.

The proposed policy adds four new criteria to the framework used to evaluate such proposals:

  • The absence or presence of an executive chair
  • Recent board and executive leadership transitions
  • Director and/or CEO tenure
  • A longer (five-year) TSR performance period

Under the current policy, any single factor may be determinative in deciding whether to issue a “for” or “against” recommendation for a particular proposal. ISS has noted that the proposed policy takes into consideration the entire situation so that any single factor may be mitigated or aggravated by other considerations, and the change could likely result in a higher level of support for independent chair shareholder proposals.

Equity Plan Proposals

The draft policy for equity incentive plan proposals suggests changing to a scorecard evaluation model. This model incorporates a range of both positive and negative factors related to plan cost, plan features, and a company’s historical grant practices. ISS currently evaluates equity incentive plan proposals by utilizing a series of stand-alone tests that focus on the cost of the equity plan and the use of certain egregious practices. Under the proposed scorecard model, a variety of factors will be assessed in their entirety, and the assessment will result in a total score that generally will determine whether a proposal receives a “for” or “against” recommendation.

However, the use of some highly egregious practices, such as the authority to re-price options without shareholder approval, will result in a negative recommendation, regardless of other plan features. ISS does not anticipate that the proposed change will influence the number of adverse voting recommendations for these proposals. Rather, the policy is designed to introduce a nuanced approach that enables ISS to evaluate equity incentive plan proposals “in consideration of a range of best practices.”

If you have any questions about how these proposed policy changes may affect you or your company, please contact Mary J. Mullany at 215.864.8631 or mullany@ballardspahr.com, Justin P. Klein at 215.864.8606 or kleinj@ballardspahr.com, Gerald J. Guarcini at 215.864.8625 or guarcini@ballardspahr.com, Brian M. Pinheiro at 215.864.8511 or pinheiro@ballardspahr.com, Katayun I. Jaffari at 215.864.8475 or jaffarik@ballardspahr.com, Kaleena Laputka at 215.864.8605 or laputkak@ballardspahr.com, or the Ballard Spahr attorney with whom you work.


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