ISS's newly-released 2020-2021 policy survey has intense applicability to compensation and governance this year, with a strong focus on how it should evaluate company responses to COVID, how changes in pay will be treated, and diversity and inclusion.
- General Nature of Pandemic. ISS issued a set of policy guidelines when the pandemic hit that generally recognized the need for flexibility during the crisis. ISS is now asking whether this increased flexibility should be carried forward to 2021 (or just for certain impacted industries) or be terminated after 2020 ends.
- Annual Meetings. ISS asked whether investors prefer in-person, virtual or hybrid annual meetings even after the pandemic.
- Executive Compensation. ISS asks the basic question of whether the pandemic is or isn’t different from other market downturns, and whether companies should therefore be given increased flexibility with regard to executive pay. Previously, ISS had discussed how their policy would favor companies disclosing new, pre-set goals and metrics for the remained of 2020. However, some investors (and Glass Lewis) have expressed skepticism adjustments would work and have instead advocated that Compensation Committees exercise reasonable (and well disclosed) discretion.
- Annual Incentives. Many companies have announced changes to short-term incentive plan structure or payouts. ISS is asking what constitutes a “reasonable company response” and whether mid-year adjustments are acceptable.
- Long-Term Incentives. ISS is noticeably silent on the topic of LTI in the survey, possibly reflecting their intention not to grant any additional flexibility to companies with regard to LTI modifications due to COVID.
- Diversity and Inclusion: ISS has joined a growing group of investors and stakeholders in requesting racial and ethnic demographic data for corporate boards. The survey, following up on ISS’s letter to companies requesting this information, asks whether such disclosure should be mandated and how investors should encourage diversity in their portfolio companies (such as voting against directors of non-diverse boards).
- Independent Chair: Despite the fact that half the S&P 500 have combined Chair and CEO roles, ISS is once again is seeking opinions on how it evaluates shareholder proposals to separate the roles of CEO and Board Chair, noting that some proposals received increased support in 2020, although only two passed.