ISS Releases 2014 Policy Update and Initiates Consultation Period for Longer Term Policy Changes

ISS Releases 2014 Policy Update and Initiates Consultation Period for Longer Term Policy Changes

November 22 2013

ClientAlert_ISS Releases 2014 Policy Update_Cover2ISS recently released its final policy guidelines for the 2014 proxy season.  The policy changes largely mirror those proposed by ISS last month.  The guidelines will be effective for all companies with annual meetings on or after February 1, 2014. The primary executive compensation related changes have been highlighted below.

Additionally, in conjunction with the release of the 2014 policy updates, ISS has opened a new Benchmark Policy Consultation website and consultation period regarding policy changes beyond 2014.  ISS is seeking comments and feedback on U.S. policies related to director tenure and independence, independent chair shareholder proposals and equity-based compensation plans.

ISS 2014 Policy Updates
This year’s changes are minor.  For U.S. companies, ISS has only one policy change and one clarification of an existing policy.

  • Modification to Relative Degree of Alignment (RDA) Screen
    • ISS will calculate this measure as the difference between the company’s TSR rank and the CEO’s total pay rank within a peer group, over a three-year period only
      • Previously, both one- and three-year measurement periods were used, weighted 40% and 60%, respectively
      • If three years of data are not available, ISS will use as many full fiscal years that the company has been publicly traded and disclosed pay data
  • Clarification on Board Response to Majority-Supported Shareholder Proposals
    • No actual policy changes
    • Majority of shares cast on a shareholder proposal in one year triggers evaluation of a company’s response to majority-supported shareholder proposals
      • Commenced with proposals appearing on 2013 ballots
      • Subject to evaluation in 2014 if proposals receive majority support
    • Director election recommendations are made on a fact-specific case-by-case basis with respect to responsiveness to majority-supported shareholder proposals
      • The Board’s rationale as provided in the proxy statement was added as one of the factors in the case-by-case analysis

Action Items
There are no specific actions that companies need to take regarding the 2014 policy update, but we recommend reviewing the new policy consultation website to get a better understanding of potential changes to ISS policy in the future.

Contact          Joseph Sorrentino       212-488-5400        jsorrentino@shallpartners.com