A House Committee recently passed the Financial CHOICE Act of 2017, and the bill will likely advance to a full House vote in coming weeks. This bill, a revision of one begun last year, addresses financial regulatory reform and the repeal or modification of significant parts of the Dodd–Frank Wall Street Reform and Consumer Protection Act. The Financial CHOICE Act has prompted representatives to discuss topics such as pay ratios, proxy ballots, shareholder proposal thresholds and proxy advisor registration.
On February 6, the SEC released a request for public comment on Reconsideration of the Pay Ratio Rule Implementation required by Section 953(b) of the Dodd-Frank Act. As it stands (unless the rule is delayed or repealed) most companies will be required to comply with the rule in their 2018 proxy statements. The Commission is seeking comment from interested parties within the next 45 days, and acting Chairman Mike Piwowar has instructed the SEC staff to review comments and make a recommendation to the Commission on whether and how to implement the rule.
Institutional Shareholder Services, Inc. (“ISS”) and Glass Lewis & Co. (“Glass Lewis”) have each released their 2017 policy updates. For ISS, the release of its policy updates marks a final milestone in its 2017 policy formulation process with additional FAQs to be published in December 2016. ISS’ few compensation related policy updates apply to the Equity Plan Scorecard and outside director compensation (e.g., director equity plans and director compensation ratification proposals). Glass Lewis did not have any updates to its compensation policies for U.S. companies. The ISS policy updates are available here and Glass Lewis policy updates are available here.
Window to Update 2016 Peer Group Open Nov. 28-Dec. 9ISS has announced that it will include six relative financial metrics in its pay-for-performance assessment, initially as part of the qualitative aspect, for companies in the U.S. and Canada beginning February 1, 2017.
- The quantitative pay-for-performance screen, which has total shareholder return (TSR) as the only measure, remains unchanged this year. The new financial metric information won’t be part of the quantitative screen in 2017, but could be referenced in a qualitative review as a mitigating or aggravating factor, and might be taken into account in the future.
Topics: Corporate Governance
Comments Due by November 10thISS has circulated its draft 2017 voting policy updates. This is the next step in its 2017 policy formulation process, and follows the release of the results of its 2016 policy survey a few weeks ago. Comments on the draft policy updates are due by November 10, 2016 at 6:00 p.m. ET. The draft policy updates are set forth here. In past years, ISS has announced other policy changes that were not circulated for review, and it would not be unexpected for that to happen again this year. ISS expects to release its final policy updates in the second half of November. The topics addressed by the draft policy updates include:
Topics: Corporate Governance
Though the disclosures for the CEO Pay Ratio are not required before the 2018 proxy season, the SEC has just issued five new Compliance & Disclosure Interpretations (C&DIs) that some companies will find helpful as they prepare for this disclosure. The C&DIs are relatively brief and have been copied below for your convenience.Initial Takeaways
- The C&DIs seem to support the notion that you can use actual cash compensation (or a reasonable estimate of actual cash compensation) to identify the median compensated employee; however, the C&DIs caution that a selected compensation measure “must reasonably reflect annual [total] compensation.” By way of example, the C&DIs state that cash compensation would not be appropriate if equity is distributed widely among its employees. This may prove to be challenging for some companies, particularly those in the technology and life sciences space that tend to grant equity deeper in the organization.
ISS released the results of its 2016 Global Policy Survey, which is the next step in its 2017 policy formulation process. The results provided an indication of the views of institutional investors and of corporate issuers on a set of ISS-determined compensation and governance policy questions. ISS generally uses these results to inform its draft policy updates, which it will publish for comment. After receiving comments on its draft updates, ISS will issue final policy updates in late fall that will be effective for annual meetings after February 1, 2017.
Topics: Corporate Governance
As part of its annual Policy Updates, Institutional Shareholder Services, Inc. (“ISS”) announced changes to its ISS equity plan proxy voting policy and to several corporate governance policies for the upcoming 2016 proxy season. Additionally, ISS released notification regarding its annual proxy peer submission process and its equity data verification portal. These policy updates are effective for annual meetings held on or after February 1, 2016.
Glass Lewis & Co. (“Glass Lewis”) recently published its 2016 proxy season policy updates for the U.S. market on Friday, November 13, 2015. Unlike prior years, the updated policies were not announced on the Glass Lewis blog or on the corporate webpage. Instead, corporate and investor subscribers were alerted to the policy updates via an email announcement. Consistent with the prior year changes for the 2015 proxy season, Glass Lewis did not make any material executive compensation related policy changes, but instead, simply provided more context surrounding the firm’s evaluation of one-off grants of cash and equity to “Named Executive Officers” (“NEOs”) and regarding the quantitative and qualitative factors used to assess equity compensation proposals. Similar to Institutional Shareholder Services, Inc. (“ISS”), much of the Glass Lewis updates center around broader director or governance related proxy ballot items, as discussed in greater detail below.
On July 1, 2015, the Securities and Exchange Commission (“SEC”) released proposed rules (http://www.sec.gov/rules/proposed/2015/33-9861.pdf) addressing the final executive compensation regulation required under Section 954 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”). Proposed Exchange Act Rule 10D-1 requires the SEC to adopt rules directing the national securities exchanges and associations to prohibit the listing of any security of an issuer that does not develop and implement a policy providing for the disclosure and recovery of excess incentive-based compensation received by a current or former executive officer whenever the issuer is required to prepare an accounting restatement in order to correct erroneous financial data.