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ISS Issues Updated FAQs on US Equity Compensation Plans and Its Scorecard Approach
Practical Law Legal Update w-005-0788 (Approx. 4 pages)
ISS Issues Updated FAQs on US Equity Compensation Plans and Its Scorecard Approach
by Practical Law Corporate & Securities
| Published on 20 Dec 2016 • USA (National/Federal) |
Institutional Shareholder Services (ISS) issued updated FAQs regarding US equity compensation plans and its equity scorecard (EPSC) approach.
On December 16, 2016, 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.
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 the authority to reprice stock options without shareholder approval. 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:
- Equity plan-related topics, including:
- cost of equity plans;
- fungible plans;
- calculation and use of the burn rate;
- liberal share recycling;
- accelerated vesting;
- liberal change in control definitions;
- equity plan amendment proposals and proposals to ensure tax deductibility under Section 162(m) of the Internal Revenue Code (26 U.S.C. § 162(m)); and
- non-employee director equity compensation plans.
- Equity Plan Scorecard topics, including:
- general questions regarding how the Equity Plan Scorecard works, including changes that were made to the Equity Plan Scorecard policy for 2017;
- questions regarding the factors that ISS considers in evaluating proposals and how the factors are weighted; and
- other methodology-related questions.
These FAQs provide general guidance and do not guarantee how the ISS Global Research Department will apply its benchmark policy in any particular situation.
For more information on ISS's 2017 voting guidelines, see Legal Update, ISS Releases 2017 Proxy Voting Guideline Updates.
For more information on proxy advisory firms and on ISS proxy voting recommendations, see Practice Note, Developing Relationships with Proxy Advisory Firms and Handling ISS Proxy Voting Recommendations Checklist.