As expected, further to its preliminary Compensation Policies FAQs released last month, ISS released its final Compensation Policies FAQs for meetings on or after February 1, 2019. As previously reported, among other key takeaways, due to its change in methodology based on its policy survey and investor roundtables, ISS won't be issuing adverse director recommendations under its new excessive non-employee director (NED) pay policy until meetings occurring on or after Feb. 1, 2020.
The new methodology (Q #68) provides as follows:
The purpose is to identify pay outliers, representing individual NED pay figures above the top 2-3% of all comparable directors. ISS will compare individual NED pay totals within the same index and sector. Directors will be compared to other directors within the same two-digit GICS group and within the same index grouping. Index groupings for purposes of this policy are as follows: S&P500, combined S&P400 and S&P600, remainder of the Russell 3000 Index, and the Russell 3000-Extended.
The revised methodology recognizes that board-level leadership positions, limited to non-executive chairs and lead independent directors, often are recognized with a pay premium as compared to other directors. For non-executive directors who serve in these board leadership positions, the policy will identify outliers as compared to others within the same category of board leadership (still considering index and sector).
The revised methodology also considers limited instances of narrow distributions of NED pay within any particular sector-index grouping. In groups where there is not a pronounced difference in pay magnitude between the top 2-3% of directors and the median director, this may be considered as a mitigating factor.
As previously reported, this new policy (methodology and application) was among those the Society expressed specific concerns about in its comment letter on ISS's recent Americas Policy Application Survey.
FW Cook outlines additional noteworthy updates here. The 2019 Equity Plan FAQs should be available on the ISS website either tomorrow or Friday. Additional information & resources will be posted real-time on our Proxy Advisors page.
This post first appeared in this week's Society Alert!