On October 27, 2016 Institutional Shareholder Services Inc. (ISS) announced the launch of its 2017 benchmark voting policy consultation period. ISS is consulting on changes to its policy on executive remuneration, its policy on audit and remuneration committee composition, and its policies on European pay for performance methodology.
Policy on Executive Remuneration
ISS is consulting on changes to the ISS UK & Ireland policy to clarify that when forming a view on new remuneration arrangements, ISS will pay particular attention to the following points:
- how far the proposals are consistent with the good practice principles set out in ISS voting guidelines;
- the linkage between the proposals and the company's strategic objectives;
- whether or not the proposals have an appropriate long-term focus;
- the extent to which the proposals help simplify executive pay; and
- the impact on the overall level of potential pay.
Furthermore, ISS is considering recommending a vote against the re-election of the chair of the remuneration committee (or, where relevant, another member of the remuneration committee) in cases where a serious breach of good practice is identified, and typically where issues have been raised over a number of years.
ISS also requests comment on whether, if serious concerns have been raised with pay practices over a number of years but the remuneration committee chair position is being rotated, respondents support the view that the longest serving member of the Remuneration Committee should be held accountable.
Policy on Audit and Remuneration Committee Composition for smaller companies
The change under consideration is that ISS' voting guidelines for audit and remuneration committee composition at AIM companies should reflect the Quoted Companies Alliance (QCA) position, namely that these committees should comprise independent non-executive directors only. ISS is consulting on recommending voting against non-independent non-executives being members of such committees.
Policies on European Pay for Performance Methodology
ISS is proposing to formalise the existing process on assessing pay performance by including a formal reference to the European pay-for-performance methodology in the UK/Ireland (UKI) and Continental European voting guidelines. The reference to the methodology will be as part of the current policy principles. The envisaged change would furthermore include the definition of the methodology, which reads as follows:
"ISS annually conducts a pay-for-performance analysis to measure the alignment between pay and performance over a sustained period. With respect to companies in the European Main Indices, this analysis considers the following:
Peer Group Alignment:
- The degree of alignment between the company's annualised total shareholder return (TSR) rank and the CEO's annualised total pay rank within a peer group, each measured over a three-year period.
- The multiple of the CEO's total pay relative to the peer group median.
Absolute Alignment – the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal years – i.e., the difference between the trend in annual pay changes and the trend in annualised TSR during the period."
The ISS requests comments by November 10, 2016 and plans to publish its final 2017 policies in the week of November 14, 2016. The revised policies will be applied to shareholder meetings taking place on or after February 1, 2017.
(ISS, UK & Ireland Policy – Executive Remuneration, 27.10.16)
(ISS, UK & Ireland Policy - Audit and Remuneration Committee Composition for Smaller Companies, 27.10.16)
(ISS, Europe, U.K. & Ireland Policies - European Pay for Performance Methodology, 27.10.16)