This week, the Center submitted its response to the 2018 ISS Policy Survey, commenting on the pay ratio and board gender diversity, based on Subscriber feedback. Annually, the proxy advisory firm publishes a policy survey in August which assists the firm in updating its voting policies going forward. This year, among the compensation and governance topics included in the survey included a question by ISS on how investors view the pay ratio as well as the possible uses for the pay ratio. Additionally, the survey also inquired about how investors and companies view a lack of gender diversity on corporate boards as well as the potential avenues companies on the issue. The Center provided the following feedback:
- Pay Ratio: The Center points out that the two approaches ISS to using the pay ratio on which ISS seeks input – to compare ratios across peers and industries and as a trend metric to measure changes in a company’s pay ratio over time -- are both “fundamentally misleading” and therefore should not be used by shareholders in determining say on pay votes. The Center points out that each company's pay ratio will be inherently unique given the differing characteristics of each company, including the number of employees, corporate structure and global footprint, which renders any comparison across peers misleading. Additionally, the Center points out the shortcomings of comparing changes in pay ratios within a company over time. Our comments use the Apple proxy statement to demonstrate that changes in the ratio may have very little to do with changes in how employees are being paid.
- Gender Board Diversity: The Center’s comments also note that the Center, and our Subscribers, strongly support the objective of ensuring appropriate representation on corporate Boards and believe obtaining proper gender representation is an important part of ensuring that Boards are equipped with the right capabilities. The Center points out that the optimal way for addressing instances where board diversity is an issue is through engagement (rather shareholder proposals or voting against current directors as offered in the survey). Our comments state that engagement properly allows the parties to consider the skills that are needed on a board, which are determined by reference to the skills and perspectives of current directors in the context of the company’s current and future expected business strategies.