What's New?
What's new and interesting about the new ISS "score card rules" are two sentences that say:
(i) that an issuer's share plan proposal may pass the Shareholder Value Transfer ("SVT") test but still receive a negative vote recommendation because of other subjective rules applied by ISS in its discretion, and conversely,
(ii) that a plan may fail the SVT test but still receive a "yes" vote recommendation based on possible subjective factors identified by ISS.
The score card rules state that SVT will be weighted 45%, grant practices 35% and plan features 20% but it's unclear how ISS will apply the weighting. In the past, an issuer's share plan proposal generally passed if the quantifiable SVT test was passed, there was little or no discretion.
What Does It Mean?
Three of the subjective factors ISS will consider are:
· percentage of the CEO's grants that are performance-based;
· does the issuer have a claw back policy; and
· are there post-termination of employment stockholding requirements?
The first two items have already gained traction and several issuers already grant CEOs 100% performance based awards and have claw backs (will be required by Dodd-Frank). If a company currently grants a CEO less than 100% performance-based awards it will likely change to improve its rating under the score card rules. What has not yet caught on despite numerous shareholder proposals are post-termination holding periods. Many of the shareholder proposals require an executive to hold 50% of his/her equity for two years post termination. CEO post-termination holding periods will become more popular starting in 2015 for companies with concerns about the passage of their equity plan proposals. These rules are effective for annual meetings after February 1, 2015.
