ISS has released its policy survey for 2019 seeking company input as part of its annual policy development process. This year’s survey is broken into two pieces: Governance Principles and Policy Application. The questions most relevant to compensation and governance include:
- Board Gender Diversity. ISS is asking (for the second year in a row) whether respondents are concerned by the lack of female directors on a public board, and if so, what actions investors should take. Alternatives range from engage with the company to consider voting against the Board Chair, lead director, or all members of the nominating and governance committee. ISS is likely looking to see if investor concern has increased on this topic as it contemplates changes to its recommendation policies.
- Independent Chair. ISS states it is considering amending its current policy on independent chair proposals, which is to generally support such proposals after taking into consideration proposal scope, current board leadership structure (i.e., the presence of an independent lead director), and overall company governance and performance. To this end, ISS is asking which factors are important when evaluating independent chair proposals.
- EVA Metric. As the Center and many others noted at the time, ISS’s addition of GAAP-only financial metrics to the pay for performance screen has resulted in confusion for both companies and investors, who often rely on adjusted measures when evaluating financial performance. ISS is now asking whether it should consider supplementing or replacing GAAP-based metrics with “adjusted and standardized financial measures related to EVA or Economic Profit” in the pay for performance screen. The query follows ISS's February acquisition of EVA Dimensions, including its proprietary EVA assessment software.
- Director Pay. In 2018, ISS began identifying companies with outlier director pay, noting that it would recommend against members of the compensation committee for companies with elevated director pay for two or more years without “sufficient explanation.” Since 2019 will be the second year, ISS is now seeking views on what constitutes a reasonable explanation for multiple years of high director pay, focused on such elements as special payments in conjunction with a business transaction, specific topic expertise or "extraordinary service."
- Board Skills Matrix. Noting that the New York C Pension Funds have argued strongly for companies to provide a board skills matrix in the proxy, rather than merely provide a narrative discussion, ISS is asking what level of disclosure about director skills and attributes would be useful to shareholders.
The Center will be providing comments to ISS on these questions, and will be soliciting Subscriber input next week to serve as the cornerstone of our comments.
In addition, we encourage your company to submit its own response to both the Governance Principles and Policy Application surveys via the link on ISS’s website here, by August 24th and September 21st respectively.