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By Michael Greene
The FAQs attempt to explain how the proxy advisory firm's new policies differ from its previous ones and provide some insight on how these polices are expected to work.
According to ISS, its new independent chair policy provides a “holistic review of all of the factors related to a company's board leadership structure, governance practices, and performance.”
ISS notes that under the new approach, “the company's performance and other governance factors could mitigate concerns about the less-than-robust lead director role,” while “[c]onversely, a robust lead director role may not mitigate concerns raised by other factors.”
The nine questions that ISS seeks to answer include: what additional factors ISS will assess under the new policy, what ISS considers a strong lead director role, and how ISS will consider board tenure and company performance under the new policy.
In an Oct. 29 letter, the Business Roundtable, an association of chief executive officers of leading U.S. companies, expressed its opposition to ISS's new holistic approach to independent chair proposals.
The group claims that public company boards, not ISS, are in the best position to make the judgments ISS plans to make and that the changes will “result in a one-size-fits-all voting policy.”
In its FAQs, ISS also answers 20 questions related to its new scorecard for evaluating equity compensation proposals, including: what is the basis for its new approach, how its models differ, how the equity plan proposals at recent IPO companies will be evaluated, and what factors are considered and why.
According to ISS, “[a] score of 53 or higher (out of a total 100 possible points) generally results in a positive recommendation for the proposal (absent any overriding factors).”
Some of the factors that will result in a negative recommendation regardless of other factors include,
• a liberal change-of-control definition (including, for example, shareholder approval of a merger or other transaction rather than its consummation) that could result in vesting of awards by any trigger other than a full double trigger;
• if the plan would permit repricing or a cash buyout of underwater options or SARs without shareholder approval (either by expressly permitting it—for NYSE and Nasdaq listed companies—or by not prohibiting it when the company has a history of repricing—for non-listed companies);
• if the plan is a vehicle for problematic pay practices or a pay-for-performance disconnect; or
• if any other plan features or company practices are deemed detrimental to shareholder interests; such features may include, on a case-by-case basis, tax gross-ups related to plan awards or provisions for reload options.
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The FAQ on the independent chair policy is available at http://www.issgovernance.com/file/policy/2015faqusindependentchairpolicy.pdf.
The FAQ on the equity plan scorecard is available at http://www.issgovernance.com/file/policy/2015faqusequityplanscorecard.pdf.
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