ISS Proxy Voting Guidelines Updates for 2020
NFPCC notes that the direct impact ISS is having continues to be relatively unchanged in 2019. However, going forward into 2020 with new policy changes in place and the rise in shareholder activism, NFPCC believes ISS and institutional investors alike will continue to increase pressure on Compensation Committees. NFPCC notes that no significant ISS Policy Changes were made surrounding executive compensation for fiscal 2019; however, there are several policy updates for 2020. The policy updates for 2020 that stood out to NFPCC have been outlined below.
Board of Directors – Diversity: The 2019 ISS policy update stated that beginning Feb. 1, 2020, ISS will generally recommend voting against nominating committee chairs (and potentially other directors) at companies with no female directors unless certain mitigating factors apply. Such factors include a firm commitment in the proxy statement to appoint at least one woman to the board. Boards have until Feb 1, 2021 to do so.
Board of Directors – Voting: NFPCC notes that ISS has made a slight update regarding voting and director nominees in uncontested elections. Under the policy change, ISS defines “new nominee” as a director who is presented for election by shareholders for the first time and generally recommends voting for these “new nominees” on a case-by-case basis. ISS is also recommending a vote against any former CEO or CFO being recommended to the board who served as executives of an acquired company within the last five years.
Board of Directors – Independent Board Chair: ISS continues to recommend supporting independent board chairs. ISS’s 2020 policy change includes new factors that will increase the likelihood of a “for” vote.
Capital/Restructuring – Share Repurchase Programs: ISS is instituting a policy change that would recommend voting for management AND board proposal to institute open-market share repurchase plans, in the absence of company-specific concerns.
Diversity – Gender Pay Gap: ISS included “race” and “ethnicity” to the mix of voting on a case-by-case basis on requests for reports on company pay data by gender. ISS’s rationale is derived from inclusivity and states that this update will better align current policy with the requests of all types of shareholder proposals filed.
Diversity – Gender Pay Gap: ISS has included the evergreen plan to its vote against list with regards to equity compensation plan proposals.
Economic Value Added Metric: NFPCC notes that EVA was included in ISS reports for 2019 on an “information only” basis, but EVA is set to inform vote recommendations in 2020 and beyond. NFPCC is waiting to see what specifically ISS will do with EVA going forward, as the firm has yet to confirm the level of influence of EVA in the screening reports.