This week, ISS released its policy survey for 2018, seeking company and investor input as part of the annual policy development process and including questions about the use and value of the pay ratio in anticipation of the first disclosures which will be required in 2018 proxies. This year's survey is being conducted in two parts—the first, a Governance Principles Survey dealing with changes in underlying governance principles for 2018, and the second, its "Policy Application Survey" addressing how ISS interprets its existing principles. The main survey is available here, and the following questions are of particular interest:
- Pay Ratio Between Senior Executives and Employees: ISS asks two questions about how the U.S. pay ratio will be used. The first question asks how the data will be analyzed and asks whether it will be used to compare companies, to assess year-on-year changes at an individual company, or not used at all. The second question asks how shareholders should use the pay ratio—as a data point for evaluating compensation related votes, for evaluating director votes, for to assist in engaging with companies, as a "risk factor" in making investment or not at all because it will not be meaningful to investors.
- Gender Diversity: Citing the growing attention on diversity on boards and citing some jurisdictions which have implemented quotas or best practices to drive female participation, ISS asks questions about the level of concern over the lack of gender parity in public company board participation. The Policy Application survey also asks whether companies should disclose their gender pay gaps more generally and whether disclosure depends on certain factors (e.g., disclosure is legally required or the company has experienced controversies on gender pay).
- Share Issuance and Buyback Proposals: Comparing requirements under which EU and UK domiciled companies who are also listed on stock exchanges in those countries must obtain shareholder approval for share issuances and buybacks, ISS seeks input on whether, as a matter of principle, a shareholder vote should be required or whether these matters should be the purview of the board. Secondly, for companies incorporated in a different country but listed on a U.S. exchange, the survey asks whether ISS should assess the company under the rules of the exchange rather the rules of where the company is incorporated.
- "One-Share, One Vote": Explaining the concerns of issuing shares with no voting rights as missing needed investor protections, the survey asks how respondents view multi-class capital structures with unequal voting rights.
- Virtual and Hybrid Meetings: Acknowledging that in many markets, companies are permitted to use electronic communication to facilitate shareholder participation at annual meetings, the survey asks for the respondents view of using technology to hold "hybrid" or "virtual-only" shareholder meetings.
- Outcomes-Based Compensation Measures: Notes that ISS is considering adding its formulation of realizable pay to the quantitative Pay-for-Performance methodology as a way of assessing the executive compensation "program's rigor and responsiveness to company pay and performance" and asks whether it should be included, and if so, how, including mitigating pay-TSR misalignment or excessive pay or exacerbate concerns regarding the pay-performance relationship..
- Non-Employee Director Pay: Noting that non-employee director pay has increased, according to ISS data, and stating that currently ISS identifies director pay outliers by comparing companies to other industry and 4-digit GICS peers, the survey asks what factors ISS should consider in determining if a governance concern exists in regard to high pay and when ISS should recommend against.
- Gender Pay Gap: Citing the rise in gender pay gap proposals, the survey asks whether companies should be required to disclose the gender pay gap, if disclosure should depend on certain factors, what those factors should be, and other disclosures that would mitigate the need for a gender pay gap disclosure.
- Poison Pills: Asks whether ISS should consider recommending “withhold” votes for certain directors when a short-term poison pill is adopted without a shareholder vote?