Proxy Advisor Policy Changes for 2021

As we head into this year’s proxy season, it’s time to review the changes proxy advisors have made to their voting policies for stock plan proposals.

ISS Policy Changes

The most significant ISS policy change with respect to equity compensation plans is that the scores necessary for stock plans to receive a favorable recommendation increased for S&P 500 companies (from 55 points to 57 points) and Russell 3000 companies (from 53 points to 55 points).

ISS’s 2021 policy also includes some minor clarifications regarding the disclosures companies must make with respect to terminated equity plans, when the company does not plan to issue any further grants under the plan and would like the remaining available shares under the plan to be removed from ISS’s SVT analysis.

ISS Burn Rate Maximums

It is, of course, important for companies to ensure that their burn rate does not exceed ISS’s cap for their industry. As is often the case, burn rate caps decreased for most companies. The caps decreased for 55% of S&P 500 industries, 88% of Russell 3000 industries, and 74% of non-Russell 3000 industries. In the S&P 500 and non-Russell 3000, the largest drop was in real estate (drops of 1.07 and 2 points, respectively). In the Russell 3000, the largest drop was in diversified financials (1.9 points).

Burn rate caps were not increased for any industries in the S&P 500. In the Russell 3000, three industries saw increases (food & retailing staples; food, beverage & tobacco; and household & personal goods). Five industries in the non-Russell 3000 saw increases (commercial & professional services, consumer services, retailing, health care equipment & services, and software & services).

Award Modifications

Companies that are considering modifying existing performance targets or award payouts should keep in mind the statement ISS issued last year regarding their position on these changes (see “ISS Policy on Performance Award Modifications”). In general, ISS takes a dim view of changes to outstanding LTI awards.

Glass Lewis

Glass Lewis does not appear to have made any significant changes in how they evaluate stock plans (at least none that they discuss in their published policy—Glass Lewis is considerably less transparent about their voting policies than ISS).