CLIENT ALERT: Institutional Shareholder Services Releases Voting Policy Updates for 2018

Steve Wolosky, Andrew Freedman and Ron Berenblat

On November 16, 2017, Institutional Shareholder Services (“ISS”) released updates for its Global Benchmark Proxy Voting Guidelines that will take effect for shareholders meetings held on or after February 1, 2018. These updates take into account the results of ISS’ Global Policy Survey, which we covered in our previous client alert released on September 26, 2017, as well as its examination of relevant research, studies and commentary and various policy roundtables and group discussions held by ISS. This client alert focuses on ISS’ main updates to its policies for the United States relating to its recommendations on director elections and shareholder proposals.

Director Elections

ISS adopted a new policy with regards to non-employee director (“NED”) compensation as this topic has drawn the “corporate governance spotlight” in recent years. ISS will give adverse vote recommendations for board or committee members who are responsible for setting or approving NED compensation when ISS identifies a recurring pattern of excessive NED pay. The new policy will not affect vote recommendations in 2018 and would only be triggered after a pattern of excessive NED pay has been identified over two or more consecutive years.

In addition, ISS updated its policy with regards to boards that have adopted or renewed a poison pill that was not previously approved by the shareholders. Going forward, ISS will recommend against all board nominees each year as long as the company maintains a long-term poison pill (duration of more than 1 year) that has not been approved by shareholders. ISS will no longer consider a board’s undertaking to put a long-term pill to a vote of shareholders the following year as a “mitigating factor” when assessing the pill.  Previously grandfathered boards of companies with 10-year pills from 2009 will no longer be exempt from negative vote recommendations from ISS.  ISS will continue to evaluate adoptions of short-term pills (duration of 1 year or less) on a case-by-case basis, however, ISS will pay closer attention to the “rationale for their adoption” than on the company’s track record and corporate governance.  Consistent with ISS’ current policy, renewals or extensions of existing pills will not be assessed on a case-by-case basis. 

Shareholder Proposals

ISS adopted a new policy with regards to shareholder proposals related to gender pay gaps. Shareholder proposals that request reports on a company’s pay data by gender or on a company’s policies and goals for reducing existing gender pay gaps will be evaluated on a case-by-case basis.  In its assessment of these specific proposals, ISS will consider the following factors when providing its recommendation:

• The company’s current policies and disclosures related to its diversity and inclusion policies and practices;
• The company’s compensation philosophy and use of fair and equitable compensation practices;
• Whether the company has been the subject of recent controversies, litigation or regulatory actions related to gender pay gap issues; and
• Whether the company’s reporting regarding gender pay gap policies or initiatives lags its peers.

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