Institutional Shareholder Services (ISS) launched its annual global benchmark policy survey last week as part of its review of its proxy voting policies. This year, ISS has broken its survey up into two parts – the Governance Principles Survey and the Policy Application Survey. The Governance Principles Survey is higher-level and covers “one-share, one vote,” board gender diversity, cross-market company share issuances and repurchases, the use of virtual meetings, and pay ratio disclosures. The more in-depth Policy Application Survey drills down into key issues by market and region as well as by topic, such as responsible investment, takeover defenses, and remuneration/compensation.
Institutional investors, companies, corporate directors and other market constituents are invited to participate in the survey. The Governance Principles Survey will be open until Thursday, August 31, 2017 at 5pm ET and the Policy Application Survey, which respondents have the option to take after completing the Governance Principles Survey, will remain open until Friday, October 6, 2017 at 5pm ET. ISS will then review the results to inform any updates to its policies ahead of 2018 annual shareholder meetings. The survey can be accessed here.
Below is a description of the five issues on which ISS is seeking input in the Governance Principles Survey. We’ve also described below the questions from the Policy Application Survey that are applicable to U.S. and Canadian companies. Our descriptions are based on ISS’ email announcement and the two-part survey itself.
Governance Principles Survey
One-Share, One-Vote Principle
- When, if at all, is it appropriate for a company to issue unequal shares?
- Should there be a sunset provision on these rights?
- Should they be subject to periodic re-approval by holders of low-vote shares?
Gender Diversity on Boards
- Is it concerning if there are no female directors on a public company’s board?
- Are concerns mitigated by a disclosed policy/approach that describes considerations taken into account by the board or nominating committee to increase gender diversity on the board?
- If the answer depends on certain factors, what are those factors?
- What actions do you consider appropriate for shareholders to take at a company that lacks gender diversity?
Share Issuance and Buyback Proposals
- What should be the approach for evaluating proposals for share issuances or share repurchases for cross-market companies (e.g. those incorporated in the U.K., Ireland, or the Netherlands and listed in the U.S.) that are required to seek shareholder approval unlike U.S. domiciled companies?
- Are virtual (entirely supplant physical meeting) and/or hybrid (supplement physical meeting) meetings acceptable?
- If hybrid meetings are acceptable, are virtual-only meetings acceptable only if they provide the same shareholder rights as in a physical meeting?
Pay Ratio Between Senior Executives and Employees
- How will your organization evaluate pay ratio data? Will they compare ratios across companies/industry sectors or will they assess year-on-year changes in the ratio at an individual company (or both)?
- How should shareholders consider this information? Should they consider it as (i) one data point in determining votes on compensation-related resolutions; (ii) one data point in voting on directors; (iii) background material for engagement with the company; (iv) a factor to be weighed in making investment decisions?
Policy Application Survey
Outcomes-based Compensation Measures
- ISS is considering adding realized or realizable pay to the quantitative pay-for-performance (P4P) methodology. Does your organization support the use of realized or realizable pay as part of P4P, and if so, how should it be included?
Non-employee Director (NED) Pay
- According to ISS data, NED pay has increased significantly since 2012. Currently, ISS identifies NED outliers by comparing NED pay to other companies within the same index and GICS.
- What factors should ISS consider when determining if a governance concern exists in regard to high pay magnitude or problematic pay structures?
- What actions would be appropriate when ISS identifies a pattern of high NED pay levels at a company, i.e., when should ISS provide an against recommendation?
Gender Pay Gap
- There has been an increase in shareholder proposals over the last two years requesting disclosure on gender pay equity. Should companies disclose their gender pay gap information?
- And if the answer depends on certain factors, what are those factors?
- Is the absence of specific gender pay gap disclosure mitigated by a company’s robust disclosure of diversity and inclusion policies and practices or compensation philosophy and fair and equitable compensation practices?
- Should ISS apply a case-by-case approach to recommending “withhold” votes for certain directors when a short-term (a term of one year or less) poison pill is adopted without a shareholder vote?
ISS typically announces its proposed policy changes and seeks further comment approximately two months after the survey closes. More information on ISS’s policy development process is available here.