Institutional Shareholder Services’ (ISS) annual benchmark policy survey is now open, with a focus on social and governance questions (the “S” and “G” of ESG). Separately, ISS released a survey focused on climate and environment, or the “E” in ESG. The surveys collect feedback from institutional investors, corporate issuers and other interested parties to inform the ISS 2022 voting policy, which is typically published in November each year. A copy of the ISS press release (which contains links to the surveys) can be found here.
While most large institutional investors rely on their own policies and procedures, proxy advisor policies can influence voting decisions and signal broader areas of focus by institutional investors. For this reason, stakeholders are encouraged to respond. Both surveys will close to participation on August 20, 2021 (5:00 p.m. ET).
Overall compensation quantum has increasingly found its way onto the radars of investors and proxy advisors alike. Under its pay-for-performance testing, ISS currently considers total pay on a one-year basis relative to the median of peer CEOs. The survey seeks to understand if the screening should focus on a longer time period, noting three years as an example.
In 2020, ISS asked for views on annual general meeting (AGM) formats longer-term, absent social restrictions, given the general trend toward virtual meetings and increased flexibility amid the uncertainty of the pandemic. Investors overwhelmingly noted a strong preference for a hybrid meeting approach (in-person meeting with facilities for virtual shareholder attendance). ISS is again asking for views on AGM formats, related specifically to virtual-only meetings and what practices might potentially be problematic. The survey also asks how shareholders could voice concerns with the operation of virtual meetings (e.g., limiting the ability to ask questions live and registration requirements), ranging from engagement with the company to negative votes for directors.
On the topic of executive compensation, ISS solicits feedback around in-cycle adjustments to long-term incentive programs (LTIPs). Throughout 2021 adjustments to in-flight awards have generally not been well received, with a preference from ISS and investors to allow LTIPs to complete their cycle despite short-term disruptions. Given the ongoing nature of the pandemic and the severe impacts to some industries, ISS asks for updated viewpoints around in-cycle adjustments going forward with a binary response of continuing to view as problematic or assessing reasonability on a case-by-case basis.
It is notable that ISS did not solicit views on long-term incentive changes in the 2020 survey. One could reasonably infer this means more of an openness to consider changes to LTIPs based on individual facts and circumstances. In any case, companies that have made changes to their long-term incentives will need to continue carefully thinking about how to explain this in their compensation discussion and analysis.
Perhaps not surprising, given the growing momentum around ESG matters in the investor community and coupled with an acceleration in boards’ focus on human capital during COVID-19 and social unrest in the U.S., the survey poses questions on various ESG-related topics:
The survey is open for participation until the close of business (5:00 p.m. ET) on Friday, August 20, 2021. Results are typically released approximately three weeks after the survey closes. An open public comment period will occur after release of the final proposed policy changes.
It’s too early to predict which, if any, changes or updates will ultimately be adopted for 2022. It should also be noted that ISS does not always include potential policy updates in the survey. Final policy updates are typically released in November followed by a FAQ release in December. The final policies become effective for shareholder meetings taking place on February 1, 2022, or later.
We encourage companies to stay current on evolving policies for shareholder voting on executive compensation and to weigh in via the ISS policy survey and the broader policy formation process.
