On Tuesday this week, I posted on the recent ISS FAQs related to COVID-19 pay changes. Today I want to note that the FAQs also addressed certain issues not related to changes to performance targets and metrics.
Evaluation of COVID-Related Retention or Other One-Time Awards
ISS expects that companies that grant one-time awards to address concerns resulting from the pandemic, including awards with a retention component, will clearly disclose the rationale for the awards (including magnitude and structure), as well as describe how the award furthers investors’ interests. ISS will not view boilerplate language regarding “retention concerns” as sufficient rationale. ISS also expects that (i) awards will be reasonable in magnitude, (ii) the vesting conditions will be long-term, strongly performance-based, and linked to the underlying concerns the award, and (iii) the awards will include shareholder-friendly guardrails to avoid windfall scenarios, including limitations on termination-related vesting.
Evaluation Retention or Other One-Time Awards Granted in the Context of a Forfeited Incentive
ISS will look askance at awards granted as a replacement for forfeited performance-based awards. To the extent one-time awards are granted in the year (or following year) in which incentives are forfeited, ISS expects companies to explain the specific issues driving the decision to grant the awards and how the awards further investors’ interests.
Changes to Equity Plan Scorecard (EPSC)
For the 2021 policy year, the passing score for the S&P 500 EPSC model will increase to 57 points. The passing score for the Russell 3000 EPSC model will increase to 55 points. For all other EPSC models, the passing score will remain 53 points. ISS made no changes to EPSC specifically related to the pandemic.
Changes to ISS’ SSOP Responsiveness Policy in Light of COVID-19
ISS may cut some slack to companies that received less than 70% support on the say-on-pay proposal, but are unable, due to the pandemic, to take actions or make changes to pay programs and practices to address the concerns of ISS and investors. However, in this case, the company’s proxy statement should disclose specifically how the pandemic has impeded the company’s ability to address shareholders’ concerns. If pay program changes are delayed, or do not necessarily fully address shareholder feedback, the company should disclose a longer-term plan on how it intends to address investors’ concerns.
Problematic Pay Practices
ISS’ Problematic Pay Practices policies will be consistent with prior years.
ISS also made no changes on option repricing programs, which case-by-case approach generally opposes repricings that occur within one year of a precipitous drop in the company’s stock price. If boards undertake repricing actions without seeking prior shareholder approval, the directors’ actions will remain subject to scrutiny under the U.S. policies on board accountability.
-Mike Melbinger, CompensationStandards.com October 23, 2020
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