On December 18, 2015, Institutional Shareholder Services (ISS) issued updated FAQs that discuss ISS's policies regarding US equity compensation plans, as well as its scorecard approach to evaluating equity compensation proposals at US companies.

ISS first adopted the scorecard approach in November 2014 and issued FAQs in December 2014 and November 2015. In previous updates, the US equity compensation plan FAQs were included with ISS's FAQs on US executive compensation policies (see Legal Update, ISS Releases Updated FAQs Regarding 2015 US Compensation Policies).

Under the US Equity Plan Scorecard approach, ISS considers a range of positive and negative factors to evaluate equity incentive plan proposals. Factors are grouped under three "pillars" (Plan Cost, Plan Features, and Grant Practices). Each factor has a maximum potential score, with 53 out of 100 total potential points required to "pass" the Equity Plan Scorecard.

The scorecard approach will continue to result in negative recommendations for equity plan proposals that contain problematic practices, such as authority to reprice stock options without shareholder approval. In addition, in cases where a proposal will not increase plan cost, and the positive aspects or changes being made outweigh any negative amendments, ISS may recommend that shareholders support the plan regardless of its score. However, typically a company's total score under the Equity Plan Scorecard determines whether ISS will recommend voting for or against the proposal.

The FAQs cover:

Update: On March 23, 2016, ISS added seven new FAQs to its FAQs on US equity compensation plans.

For more information on ISS's 2016 voting guidelines, see Legal Update, ISS Releases 2016 US Summary Proxy Voting Guidelines. For more information on ISS's proxy voting practices and procedures, see Legal Update, ISS Issues FAQs on Its 2016 Proxy Voting Policies and Procedures.