November 14, 2023


ISS and Glass Lewis Publish Results of 2023 Policy Surveys

Each year, ISS and Glass Lewis update their benchmark policy proxy voting guidelines. ISS has annually surveyed institutional investors, public companies and service providers (e.g., law firms, consultants) for their views on corporate governance best practices to support the process of updating proxy voting guidelines. This year, Glass Lewis joined in with its first policy survey. The results of the surveys are used by the proxy advisory firms to update their benchmark policy guidelines but do not necessarily dictate what the proxy advisory firms ultimately adopt.

Over the last week, ISS and Glass Lewis published the results of their respective 2023 benchmark policy surveys. Consistent with historical results, the findings of the surveys generally show a contrast between investor responses and non-investor responses (primarily, public companies and service providers). The ISS survey covered only one compensation-related issue about disclosure of non-GAAP metrics used in incentive plans, whereas Glass Lewis conducted a broad survey soliciting views on many compensation topics. Final updates to benchmark policies are typically released in November and December. ISS provides a comment period on proposed changes before final policy guidelines are adopted for the year.

Key findings on executive compensation and board-related matters from the policy surveys are summarized below:

1. Executive Incentive Compensation Plans


ISS asked respondents whether companies should disclose line-item reconciliation of non-GAAP adjustments to metrics used in incentive plans.

60% of investors replied that line-item reconciliation of non-GAAP metrics should always be disclosed, and 35% replied the disclosure is only needed when adjustments significantly impact payouts, or when non-GAAP results vary significantly from GAAP. Non-investor respondents were not as strongly supported, though more than 50% replied that non-GAAP reconciliation should be provided at least some of the time.

Glass Lewis

Glass Lewis asked about the extent to which companies should incorporate ESG metrics in executive compensation plans.

43% of investors and 37% of non-investors believe all companies should incorporate ESG metrics in compensation plans. 37% of investors and 54% of non-investors believe the inclusion of ESG metrics in executive incentive plans should be decided on an individual company basis.

Glass Lewis asked if vote recommendations should be modified if companies do not provide a reconciliation of non-GAAP metrics used in incentive plans when incentive outcomes are materially impacted by using non-GAAP metrics.

81% of investors and 52% of non-investors believe that a lack of disclosure of reconciliation from GAAP to non-GAAP metrics in the proxy statement should be a factor in Say on Pay vote recommendations. 54% of investors and 23% of non-investors believe it should be a strong factor.

2. Pay for Performance Alignment



Glass Lewis

Glass Lewis polled respondents on the importance of various relationships used in assessing executive pay for performance alignment.

Financial results excluding TSR received the most support as a “Very Important” factor for both investors and non-investors in evaluating the relationship between pay and performance. In response to the new SEC Pay versus Performance disclosure, 81% of investors view the change in value of outstanding CEO pay compared to TSR performance as important whereas only 58% of non-investors viewed the same as important. Non-investors were most likely to identify this relationship as not a factor at all in assessing the pay for performance relationship.

Glass Lewis polled respondents on the importance of certain features in mitigating concerns with executive pay quantum.

Investors and non-investors replied somewhat evenly across each feature in terms of their importance. Disclosure of established payout limits for variable incentives, disclosure of actual pay outcomes for short- and long-term incentives, disclosure of all targets for performance-based incentives, vesting period of at least three years for long-term incentives and weighting CEO pay more heavily towards equity than cash were all viewed as important to a majority of both investors and non-investors.

3. Severance



Glass Lewis polled respondents for their views on termination benefits when an executive is terminated without cause.

On average, 55% of investors and 37% of non-investors are concerned by termination benefits in cases of termination without cause. Specifically, continued and accelerated vesting of equity awards was most commonly concerning to investors and non-investors. This includes performance awards allowed to continue to vest based on performance achieved after termination (without pro-ration) and accelerated vesting of outstanding time-based awards (without pro-ration). Most investors and non-investors were not concerned with cash severance payments in connection with termination without cause.

4. Clawbacks



Glass Lewis

Glass Lewis polled respondents on whether clawbacks should be applied under various scenarios.

Investors are far more likely than non-investors to support the application of clawbacks, particularly in instances of a company’s material operational failure, risk management failure and reputational failure. There is more consensus among investors and non-investors that clawback policies should be applied to instances of material misconduct and incorrect payout due to miscalculation. Only 4% of investors and 14% of non-investors believe that clawbacks should only apply in cases of restatement, which shows that most respondents support the use of clawbacks in at least some scenarios beyond those covered by the new SEC regulation on clawbacks.

5. Executive Shareholding Requirements

Glass Lewis

Glass Lewis polled participants on the importance of certain features used in assessing a company’s executive share ownership features.

Investors were more likely to view post-vesting and post-employment holding requirements as important (66% and 53%, respectively) than non-investors (39% and 30%, respectively). Investors and non-investors generally agreed that the presence and size of ownership requirements is important. 79% of investors and 80% of non-investors view the presence of any ownership requirement as important, and 78% of investors and 79% of non-investors view the size of the ownership requirement as important.

6. Board of Directors


ISS asked whether a director should be classified as non-independent if an immediate family members provides professional services to the company in excess of a certain amount (currently $10,000).

51% of investors view this policy as appropriate, compared to 27% of non-investors. 36% of investors and 47% of non-investors generally support a policy but think that the thresholds should be increased or the policy should apply differently to relatives who do not share a household with the director.

Glass Lewis

Glass Lewis asked whether a mandatory retirement policy is a reasonable method to promote board refreshment.

42% of investors and 41% of non-investors replied that yes, mandatory retirement policies are a reasonable method to ensure board refreshment. 31% of investors and 41% of non-investors view such policies as posing greater disadvantages than advantages.

Glass Lewis asked whether boards should require a “cooling-off period” for former executives that join the board before the former executive can be viewed as independent.

27% of investors and 51% of non-investors do not view cooling-off periods as necessary. Among supporters of a cooling-off period, most support a period of three to five years.

Glass Lewis asked whether companies that use a plurality vote standard for director elections (thereby virtually guaranteeing a director’s election in uncontested elections) should be subject to an adverse recommendation.

42% of investors believe at least one adverse recommendation is warranted for companies employing a plurality standard for director elections, and 32% of non-investors believe same. The most common view among investors was that a nomination and governance committee member should be held accountable via an adverse vote recommendation (20%) with all board members being held accountable the second most common view (17% of both investors and non-investors).

Additionally, most investors and non-investors believe that resignation policies (that require directors who did not receive majority support to submit a letter of resignation) mitigate concerns about plurality voting, but many qualified that these policies are undermined by boards’ over-reliance on discretion to reject resignations.

Glass Lewis polled participants on their views of the maximum number of public company boards a non-executive should serve on simultaneously.

89% of investors and 92% of non-investors responded that five or fewer boards is reasonable. The most common response among investors was three boards, and among non-investors it was four boards.

On the follow-up question, only 30% of investors and 39% of non-investors think that directors at companies with a robust director commitments policy should receive leniency on their board commitment levels.

The vast majority of respondents think that directors’ leadership roles (e.g., board chair, committee chair) should be considered if the director serves on multiple boards when assessing their total board commitment level.