ISS recently issued Frequently Asked Questions (FAQs) related to COVID-19 pay decisions. The updated FAQs explain how ISS will approach COVID-related compensation issues for the 2022 proxy season. This article focuses on changes since last year’s guidance and we also note where the FAQs did not change. CAP’s 2020 summary can be found here.

Similar to the guidance provided last year, ISS’ qualitative evaluation will take into consideration the impact on company operations as a result of the pandemic and an elevated concern from the quantitative screen will continue to result in a more in-depth qualitative review of the company’s pay programs and practices. ISS also highlighted the fact that investors believe that in 2021 boards were in a position to return to traditional pre-pandemic incentive structures and want a strong link to performance.

COVID-Related Changes to Annual Incentive Programs

Given that 2022 will be the third proxy season since the advent of the COVID-19 pandemic, ISS states that the “surprise element of the pandemic in early 2020 is generally no longer applicable.” As such, the presence of mid-year changes to metrics, performance targets, and/or performance measures, or programs that rely heavily on discretion, will be viewed negatively by ISS, especially if the company displays a quantitative pay for performance misalignment. ISS will allow for lower pre-set targets relative to the prior year as well as moderate increases to the weighting of subjective criteria if the company in question has “continued to incur severe economic impacts and uncertainties as a result of the pandemic in 2021.”

ISS emphasizes that a lower performance target should be accompanied by disclosure explaining the board’s rationale and how the board determined payout possibilities, particularly if the payout opportunities are not commensurately reduced.

COVID-Related Changes to Long-Term Incentive Programs

ISS’ guidance has not changed since last year. Adjustments to in-progress long-term incentive programs will be viewed negatively, particularly if the company has been flagged for having a quantitative pay for performance misalignment. If companies continue to incur negative impacts over a long-term period, modest alterations to going-forward awards may be considered reasonable by ISS. More drastic changes, such as making long-term equity predominantly time-based or instituting shorter performance periods, will continue to be viewed negatively. Any changes to the program should be explained clearly by the company.

Changes to Pay Program Beyond the Year in Review

If a company has made significant adjustments to its pay program that ISS would typically view as concerning, a clear statement that the company intends to return to a robust performance-based program going forward may be viewed as a mitigating factor by ISS. The extent to which ISS may support the changes depends on the detail of disclosure and extent to which the changes are meaningfully positive.

COVID-Related Retention or One-Time Awards

ISS’ guidance has not changed since last year. In the event of a one-time award, a rationale for the award should be clearly disclosed, as well as a description on how the award is in shareholders’ interests. Companies should avoid boilerplate language regarding “retention concerns.” Any such award should be reasonable in magnitude and an isolated practice. Vesting conditions to any such award should be significantly performance-based and long-term. The award should have guardrails, such as limitations on termination-related vesting, to avoid windfall scenarios.

Well-structured retention or other one-time awards may be appropriate in limited circumstances, but investors do not expect companies to grant such awards as a replacement for forfeited performance-based awards. To the extent that this is the case, companies should explain the specific issues driving the decision to grant the awards and how the awards further investors’ interests, as well as how such awards do not merely insulate executives from lower pay.

Responsiveness Policy

ISS also released information about its responsiveness policy considering COVID-19. When a company receives less than 70 percent support on a say-on-pay proposal, ISS’ responsiveness policy reviews three factors:

  • The disclosure of the board’s shareholder engagement efforts (no change);
  • The disclosure of the specific feedback received from dissenting investors (no change); and
  • Any actions or changes made to pay programs and practices to address investors’ concerns.

The guidance notes that the expectations regarding the first two factors will remain consistent with prior years. ISS’ policy with respect to the third factor will return to its pre-pandemic application. The company must demonstrate that it has responded to negative shareholder feedback, including feedback in response to one-time COVID pay decisions, in which case the board could demonstrate responsiveness by committing not to repeat the action viewed as problematic by the investors. The previous ISS guidance for the third bullet noted above had stated, “With respect to the third factor, if a company is unable to implement changes due to the pandemic, the proxy statement should disclose specifically how the pandemic has impeded the company’s ability to address shareholders’ concerns. If pay program changes are delayed, or do not necessarily fully address shareholder feedback, the company should disclose a longer-term plan on how it intends to address investors’ concerns.”


This article highlights updates to ISS’ COVID-related compensation FAQs. The ISS document can be found here.

ISS recently published its 2022 policy updates, which will go into effect for annual meetings held on or after February 1, 2022 (and, in some instances, February 1, 2023). This article discusses key updates made to ISS’ compensation and Environmental, Social and Governance (ESG) voting policies.

Executive Compensation-Related Update

Burn Rate

For stock plan valuations, ISS has changed its burn rate calculation, which will be in effect for meetings on or after February 1, 2023. The burn rate will be referred to as the “Value-Adjusted Burn Rate” and will be calculated as follows:

option $ value usinga Black-Scholes modelnumber of full-valueawards grantedstockpriceweighted averagecommon shares outstandingstockpricenumber of options granted

The calculation currently in effect is:

number of appreciation awards grantednumber of full-value awards grantedvolatility multiplierweighted averagecommon shares outstanding

Note: The volatility multiplier is used to provide a more equivalent valuation between stock options and full-value shares and is based on a company’s historical stock price volatility.

The Value-Adjusted Burn Rate benchmark will be the greater of: (1) an industry-specific threshold based on three-year burn rate within the company’s GICS group (broken down by S&P 500, Russell 3000 excluding the S&P 500, and non-Russell 3000) and (2) a minimum threshold for each of the three segmented groups noted above. The change in the burn rate benchmark year-over-year will be limited to a predetermined range above or below the prior year’s burn rate benchmark.

The current burn rate benchmarks are calculated as the greater of: (1) the mean plus one standard deviation of the company’s GICS group (broken down by S&P 500, Russell 3000 excluding the S&P 500, and non-Russell 3000) and (2) two percent of weighted average common shares outstanding. Year-over-year benchmark changes are limited to a maximum of two percentage points plus or minus the prior year’s benchmark.

Per ISS, the new Value-Adjusted Burn Rate calculation will more accurately measure the value of recently granted equity awards, as the methodology is based on the actual stock price for full-value awards and the Black-Scholes value for stock options. The current calculation uses a multiplier based on three-year stock price volatility and groups companies into broad categories based on six volatility-based multiplier buckets.

Details on the new Value-Adjusted Burn Rate calculations have not been released to date.

Diversity-Related Updates

Board Gender Diversity

ISS has made certain updates to its policies on board gender diversity. ISS already recommends a vote against or withhold from the chair of the nominating committee in instances where there are no women on the board for companies in the Russell 3000 and S&P 1500, considering it mitigating if there was a woman at the previous meeting and the board has made a firm commitment to have a woman on the board within a year. This same policy will apply to all companies, not just in the aforementioned indices, beginning February 1, 2023.

Racial/Ethnic Diversity

In its policy update last year, ISS indicated that it would recommend a vote against or withhold from the chair of the nominating committee if the board had no apparently racially or ethnically diverse members (with the same exceptions with respect to gender diversity noted above) beginning on February 1, 2022. As such, ISS will now actively begin to issue vote recommendations related to the racial/ethnic diversity of boards.

Shareholder Proposals on Racial Equity and/or Civil Rights Audits

ISS has indicated that it will take a case-by-case approach to shareholder-proposed resolutions on racial equity and/or civil rights audits, in which it will consider: the company’s current process for addressing racial inequity; the company’s racial justice efforts and track record in recent years; the company’s engagement with “impacted communities, stakeholders, and civil rights experts”; whether the company has been the subject of recent controversy, litigation, or regulation related to inequity or discrimination; and whether the company is aligned with market practice on these issues.

Climate Accountability

For companies that are significant greenhouse gas (GHG) emitters, through operations or value chain, ISS has indicated that it will generally recommend a vote against or withhold from the chair of the responsible committee overseeing GHG emissions if the company has not taken what ISS considers to be the minimum steps toward understanding, assessing, or mitigating emission-related risks. These steps include a detailed disclosure of climate-related risks and appropriate GHG emissions reduction targets.

In 2022, this policy will only apply to the companies appearing on the Climate Action 100+ Focus Group list. ISS states that its expectations for the minimum criteria noted above will increase over time.

This article highlights changes to ISS’ policies and is not intended to be exhaustive. For information related to ISS voting policies, please visit ISS Proxy Voting Guidelines Updates for 2022.

We expect further changes to ISS compensation-related policies when the FAQs are released at the end of this month.

Glass Lewis recently released its 2022 policy guidelines, with new amendments on compensation, board diversity, and environmental and social areas. The key changes for 2022 focus on diversity and SPAC governance. This article discusses key compensation and Environmental, Social and Governance (ESG) updates.

Executive Compensation-Related Updates

Linking Executive Pay to Environmental and Social Criteria

Glass Lewis does not maintain a policy on the inclusion of environmental and social (E&S) metrics in a company’s short- or long-term incentive program. However, if a company includes E&S metrics in its variable incentive program, Glass Lewis expects robust disclosure on the metrics selected, the rigor of performance targets, and the determination of corresponding payout opportunities. For qualitative E&S metrics, it expects the company to provide shareholders with a thorough understanding of how these metrics will be or were assessed.

Short- and Long-Term Incentives

In 2021, Glass Lewis codified additional factors that will be considered when evaluating a company’s short- and long-term incentive plan. These factors included clearly disclosed justifications to accompany any significant changes to a company’s incentive plan and inappropriate performance-based award allocation. For 2022, Glass Lewis reaffirms these expectations with the added clarification that adjustments to GAAP financial results will be considered in its assessment of the incentive’s effectiveness at tying executive pay to performance for both short- and long-term incentives.

Grants of Front-Loaded Awards

Glass Lewis will continue to approach front-loaded awards with scrutiny because the grants may preclude improvements or changes to reflect evolving business strategies. This year, Glass Lewis specified that it will continue to examine the quantum of the award on an annualized basis for the full vesting period of the awards. It will also consider the impact of the overall size of awards on dilution of shareholder wealth.

Diversity-Related Updates

Board Gender Diversity

Glass Lewis expanded its policy on board gender diversity. Glass Lewis’ current vote recommendation is based on the requirement of having at least one female board member and it will note as a concern boards with fewer than two female directors. As noted in last year’s update, beginning in 2022, it will generally recommend against the chair of the nominating committee when there are fewer than two gender diverse directors at Russell 3000 companies and the entire nominating committee when there are no gender diverse directors. Companies outside the Russell 3000 index or that have boards with six or fewer total directors will continue to be held to the 2021 policy of one gender diverse director at a minimum.

Beginning in 2023, Glass Lewis will transition from a fixed numerical approach to a percentage-based approach. It will generally recommend against the nominating chair when the board is not at least 30 percent gender diverse at Russell 3000 companies. Additionally, when making voting recommendations, Glass Lewis will carefully review a company’s disclosure of its diversity considerations and may refrain from recommending against when boards have provided a sufficient rationale or plan to address the lack of diversity on the board.

Glass Lewis replaced references in its guidelines to female directors with “gender diverse directors”, defined as women and directors who identify with a gender other than male or female.

State Laws on Gender Diversity and Underrepresented Community Diversity

In 2021, Glass Lewis began making recommendations in accordance with board composition requirements set forth in applicable state laws in addition to its standard policy on board diversity. In 2022, Glass Lewis expanded its discussion into two sections covering (i) state laws on gender diversity and (ii) state laws on underrepresented community diversity.

On gender diversity, in addition to its standard policy on board diversity, Glass Lewis will recommend in accordance with applicable state laws mandating board composition requirements. It will generally refrain from recommending against directors when applicable state laws do not mandate board composition requirements, are non-binding, or solely impose disclosure or reporting requirements. On underrepresented community diversity, Glass Lewis recognizes that states have also begun to encourage board diversity beyond gender through legislation. It will generally recommend in line with applicable state laws mandating board composition requirements.

Stock Exchange Diversity Disclosure Requirements

A new section outlines Glass Lewis’ approach to a recent disclosure rule adopted by the Nasdaq stock exchange. Beginning the later of (i) August 8, 2022 or (ii) the date the company files its proxy statement for its 2022 annual meeting, companies listed on the Nasdaq stock exchange will be required to disclose certain board diversity statistics annually in a standardized format in the proxy statement or on the company’s website. Glass Lewis will recommend against the chair of the governance committee when the required disclosure has not been provided.

Disclosure of Director Diversity and Skills

Glass Lewis began assessing the quality of disclosure on the mix of diverse attributes and skills of directors in company proxy statements in 2021. New in 2022, it may recommend against the chair of the nominating and/or governance committee of S&P 500 companies with particularly poor disclosure. Beginning in 2023, it will generally recommend against the chair of the nominating and/or governance committee for companies in the S&P 500 index that have not provided any disclosure of individual or aggregate racial/ethnic minority demographic information.

Environmental, Social and Governance-Related Updates

Overall Approach to Environmental, Social and Governance (ESG)

Glass Lewis has expanded its discussion of ESG initiatives in a new section titled Glass Lewis’ Overall Approach to ESG. Here it provides additional details of considerations when evaluating these topics. To summarize, Glass Lewis evaluates all E&S issues through the lens of long-term shareholder value. It believes that companies should be considering material environmental and social factors in all aspects of their operations and that companies should provide shareholders with disclosures that allow them to understand how these factors are being considered and how attendant risks are being mitigated. Glass Lewis’ comprehensive review of its policies on ESG is additionally published in its Proxy Paper Guidelines for Environmental, Social & Governance Initiatives, available here.

Environmental and Social Risk Oversight

Glass Lewis currently notes as a concern when boards of S&P 500 companies do not provide clear disclosure concerning the board-level oversight afforded to environmental and/or social issues. It has reaffirmed that in 2022 it will generally recommend voting against the governance chair of such companies if they fail to provide explicit disclosure concerning the board’s role in overseeing these issues. Additionally, in 2022 Glass Lewis will begin noting as a concern when boards of Russell 1000 companies do not provide clear disclosure concerning the board-level oversight afforded to E&S issues. It continues to believe that while it is important that these issues are overseen at the board level and that shareholders are afforded meaningful disclosure of these oversight responsibilities, companies should determine the best structure for this oversight.


This article highlights changes to Glass Lewis’ policies and is not intended to be exhaustive. For information related to Glass Lewis‘ voting policies, please visit 2022 US Policy Guidelines.

Institutional Shareholder Services (ISS) released on October 1st the results of its annual Global Benchmark Policy survey and its new climate survey. The surveys are part of ISS’ annual policy development process. ISS will release the final policy updates by the end of the year, to be adopted for shareholder meetings during the 2022 proxy season. This CAP alert examines key findings from the 2021 Global Benchmark Policy Survey that foreshadow shareholder expectations in 2022. Overall, the survey results align with recent trends of increased shareholder interest in environmental, social, and governance (ESG) issues.

Overview of the Survey

The global benchmark policy survey covers a wide array of issues including executive compensation, board meeting practices, and governance provisions. The survey received 409 responses, of which 39% were from investors and investor-affiliated organizations, 60% from companies or corporate-affiliated organizations (“non-investors”), and the remaining 1% from non-profit and academic organizations.

Key Findings

ESG Performance Metrics in Executive Compensation

The significant majority of respondents view the inclusion of ESG metrics as an appropriate way to incentivize executives. Investors and non-investors differ, however, on the necessity of measurable ESG metrics. Most investors maintain that ESG metrics in compensation programs must be specific and measurable, and their associated targets communicated transparently. Among non-investors, the most popular position is that even ESG-related metrics that are non-financially measurable can effectively incentivize positive outcomes that may be important to the company. Investors and non-investors favoring the inclusion of ESG metrics generally agreed that both short-term and long-term incentives can be appropriate depending on the circumstances.

Racial Equity Audits

New in 2021, several companies received shareholder proposals to conduct an independent audit for racial bias both internally within the company and externally through its business practices. Investors are split between those who support an independent racial equity audit for most companies, regardless of the corporate programs the company might have in place to address racial equity and those who favor commissioning an audit on a case-by-case basis. Most non-investors agree with the latter position. Among those respondents, the prevailing factor that would require a company to commission an audit is involvement in significant racial and/or ethnic diversity-related controversies followed by the company’s lack of initiatives at enhancing workforce diversity and inclusion. For investors, the prevailing factor that would require an audit is also the company’s involvement in significant diversity-related controversy, but the second most popular factor is the company’s lack of detailed workforce diversity statistics such as EEO-1 type data.

Long-Term Perspective on Performance

CEO pay quantum has received increased attention over the past decade. One of ISS’ three quantitative pay-for-performance tests evaluates one-year CEO pay quantum in the multiple of the median test. The survey asked respondents whether they would find a long-term perspective (such as a three-year horizon) helpful. The majority of both investors and non-investors view the long-term perspective to be relevant and helpful.

Mid-Cycle Long-Term Incentive Plan (LTIP) Changes

For the 2021 proxy season, ISS viewed mid-cycle changes to long-term incentive awards as a problematic response to the pandemic, given that many investors consider that long-term incentives should not be adjusted based on short-term market disruptions. The survey asked whether mid-cycle changes to long-term incentive programs for companies incurring long-term negative impacts should be considered problematic. Investors were divided on the topic. 53% responded against the adjustment of long-term incentives based on short-term market disruptions while 40% believed adjustments may be reasonable.

Looking Ahead

Responses from the survey indicates that investors favor more extensive disclosures on ESG issues and measuring compensation against long-term performance. Survey responses typically provide insight into future ISS policy direction. ISS will release its draft policies for public comment later this month, before finalizing them in December for meetings starting on February 1, 2022.

For full detail related to ISS Annual Global Survey results, please visit the complete published report.

Say on Pay arrived in 2011, born out of the SEC’s rule-making efforts to reform corporate governance under Dodd-Frank after the financial crisis. This non-binding advisory vote, which is an annual event at most companies, allows shareholders to cast votes for or against Named Executive Officer (NEO) compensation. While earning simple majority support is technically a passing result, most companies strive for and achieve significantly higher levels of support. Investor support of compensation programs is influenced by many factors, which primarily include magnitude of pay, pay practices, and stock price performance.

In 2020, COVID-19 significantly disrupted the global economy, causing many companies to re-evaluate their compensation programs. Proxy statements filed in 2021, which will discuss compensation during the COVID pandemic year, will depart from previous norms. In anticipation of these filings, CAP has reviewed Say on Pay voting results at Russell 3000 companies in 2020, and since inception, to gauge the current landscape with an eye on what may occur with 2021 Say on Pay results.

Say on Pay Overview

Russell 3000 Historic Results

2020 marked the 10th year of Say on Pay voting. To date, voting results have generally been very consistent over time. Median support among Russell 3000 companies has been approximately 95% in each of the past 10 years. Most companies receive support from over 90% of shareholders, with an average of 74% of companies receiving support in the 90-100% range. Consistent vote outcomes are seen at the top and the bottom end of the range. The percentage of companies falling in each range shown below has been consistent throughout the 10-year history of Say on Pay voting.

All Companies


2011 – 2020



Median Level of Support



94.7% – 95.6%

>90% Support



70.0% – 76.8%

2%2%3%1%2%2%2%2%2%2%2%2%2%2%2%2%2%2%3%2%3%4%4%4%4%3%4%4%3%4%5%6%5%5%6%6%6%7%7%8%14%12%11%11%13%12%13%13%13%15%74%74%75%77%74%76%74%73%72%70%0%10%20%30%40%50%60%70%80%90%100%20202019201820172016201520142013201220110% - 50%50% - 60%60% - 70%70% - 80%80% - 90%90% - 100%Level of Support - All Companies

Only 2.2% of companies failed to receive majority support for Say on Pay votes in 2020. The number of companies that have failed the Say on Pay vote has also been very consistent over the 10-year period, with an average of 2.0% of companies failing over the past 10 years. For companies that failed in 2020, the median level of support was approximately 38%, mirroring historical results.

All Companies – Failed Say on Pay Vote


2011 – 2020



% of Companies Failing



1.4% – 2.4%

Median Level of Support



33.1% – 42.7%

Proxy Advisor Impact

Proxy advisors have a substantial impact on the Say on Pay vote for companies. The most influential proxy advisory firm is Institutional Shareholder Services (“ISS”) which grades companies on a pay-for-performance scale to determine if, in their view, CEO pay and company performance are well-aligned. ISS will then issue a recommendation “For” or “Against” the NEO compensation program, ISS’ vote recommendation often has a substantial impact on the vote result, as outlined below.

The two main inputs that ISS looks at are CEO compensation and Total Shareholder Return compared to an ISS-defined peer group based on company size and industry. Companies will then receive a “Low”, “Medium” or “High” concern level that determines whether ISS performs a qualitative evaluation of the compensation program. The overall concern level drives ISS’ ultimate recommendation For or Against the Say on Pay resolution. Historically, approximately 95% of companies with a Low concern receive support from ISS, compared to about two-thirds of companies rated Medium concern and roughly half of the High concern companies. Often, shareholders will reference the ISS recommendation (i.e., For or Against) when casting their vote on Say on Pay; however, many institutional investors have their own proprietary tests to evaluate compensation programs at companies.

ISS has consistently recommended Against Say on Pay for approximately 12% of companies per year, over the last decade. Among companies that have failed Say on Pay, the vast majority, 96% on average, have received an Against recommendation from ISS. In 2020, roughly 20% of companies that received an ISS Against recommendation ultimately failed the vote and for all companies with an Against recommendation from ISS, the median level of support was only 67%.

ISS Against Recommendation Impact


2011 – 2020



% of Companies with ISS Against Recommendation



10.0% – 13.5%

% of Companies with ISS Against Recommendation Failing Say on Pay



10.6% – 21.5%

Median Level of Support



65.1% – 70.4%

As shown below, the percentage of companies with an ISS Against recommendation, at each support level range, has been generally consistent since the Say on Pay vote was established.

20%19%18%11%14%23%17%17%18%13%15%16%17%12%19%15%15%18%23%16%25%26%26%26%24%23%22%22%16%21%21%24%23%24%20%20%21%22%23%23%12%10%10%17%16%14%16%13%11%17%8%6%7%10%7%5%10%8%8%10%0%10%20%30%40%50%60%70%80%90%100%20202019201820172016201520142013201220110% - 50%50% - 60%60% - 70%70% - 80%80% - 90%90% - 100%Level of Support - Companies Receiving an ISS Against Recommendation

Expectations for 2021

Institutional Shareholder and Proxy Advisor Commentary

2021 proxy statement disclosures will reflect the impact of COVID-19 on company performance which influenced both executive compensation in 2020 and the development of 2021 incentive programs. While the degree of impact will vary by industry and company, many more companies than usual will disclose adjustments to their compensation programs than in past years. During 2020, shareholders and proxy advisors provided some general guidance on how they will be assessing and evaluating these unique circumstances.

Institutional shareholders and proxy advisors have both stated that they recognize that 2020 was a more challenging year than most due to the impact of COVID-19. Because of this, they will review companies on a case-by-case basis, evaluating the facts and circumstances that went into any adjustments that were made. Guidance has generally encouraged proactive, enhanced disclosure that clearly explains the situation and rationale for COVID-related changes as opposed to generic descriptions of a challenging year, which may be viewed as insufficient.

How shareholders and proxy advisors interpret and assess the COVID-related disclosures and adjustments will ultimately influence Say on Pay votes and recommendations. While ISS and Glass Lewis did not make wholesale changes to their pay-for-performance evaluations for 2021, ISS did call out key disclosure items that would help investors evaluate COVID-related changes. This indicates that there may be more discretion and flexibility applied for companies with more robust disclosure. Even with greater flexibility in the qualitative evaluations, pay-for-performance misalignment will continue to be the main driver for Against recommendations from ISS in the broader market.

CAP Expectations

Since pay-for-performance is expected to remain the primary driver for proxy advisor recommendations, Say on Pay results will continue to depend on the magnitude of pay, pay practices and stock price performance. For companies that may have a pay and performance misalignment, we expect reduced shareholder support if a company has not provided sufficient rationale for the following actions:

  • Annual and long-term incentive plan adjustments
  • Major employee actions (e.g., layoffs)
  • Performance that is dramatically below investor expectations
  • Low relative financial performance
  • Above-target discretionary adjustments to payouts that previously missed threshold performance
  • Awarding one-time special cash/equity grants

Shareholder outreach will be more important in 2021 as companies can use these discussions to supplement their required disclosures. Proactive outreach may help to prevent a significant impact on the Say on Pay result even if proxy advisors recommend Against a company’s compensation program. There will also likely be more disclosure on go-forward incentive programs, as the impact of COVID-19 lingers into 2021.

Say on Pay results in 2021 will likely depart from prior norms. Even if the percentages of Against recommendations and companies passing remains relatively consistent with historic levels, we expect to see a downward shift in the median level of support and in the percentage of companies receiving at least 90% support. For companies that do receive an Against recommendation from proxy advisors, the level of support may decline compared to historic norms if disclosures do not sufficiently justify the actions taken.


2021 Say on Pay results will likely test the “steady state” seen over the previous 10 years. While the full picture will not be clear until later this year, CAP has begun to look at companies with fiscal years ended in late 2020 to get an early read. We will continue to monitor Say on Pay results throughout the year to see how the COVID-19 pandemic shapes these results.

Kelly discusses discretion in compensation plans and the future of ESG strategies at NACD’s popular compensation forum. The virtual panel discussion and Q&A bring together compensation experts and compensation committee members to examine executive compensation trends.

In late 2018, Institutional Shareholder Services (ISS) and Glass Lewis & Co (Glass Lewis) each issued proxy voting guidelines for 2019. While policy changes announced by both firms were minimal, both ISS and Glass Lewis announced policy updates aimed at increasing female representation on boards of directors. This summary highlights some changes to ISS and Glass Lewis’ policies for 2019 and is not intended to be all encompassing.

ISS Policy Updates

ISS did not make substantial changes to its policy for 2019. In fact, ISS postponed implementing a vote recommendation on excessive director pay that was to be introduced in 2019. After receiving investor feedback, ISS revised its methodology for identifying excessive director pay and will begin making vote recommendations in 2020. Under the new policy, ISS will recommend a vote “Against” Board members responsible for setting director pay if individual director pay is above the top two to three percent of a company’s index and sector for two or more consecutive years (e.g., 2019 and 2020). ISS will consider mitigating factors, such as compression in pay within the index and sector, disclosure of a rationale for a director’s pay positioning, and a larger equity grant at time of joining the board, in its vote recommendation.

In addition to the vote recommendation on director pay in 2020, ISS will recommend an “Against” vote for the Nominating Committee Chair if the Board does not have female representation. This will apply to companies in the Russell 3000 and S&P 1500 indices for meetings that occur after February 1, 2020.

Another policy change anticipated for 2019 was ISS replacing the metrics in the pay-for-performance assessment. However, ISS did not make any changes to their assessment from 2018. ISS considered using Economic Value Added (EVA) in lieu of the current GAAP measures (Return on Invested Capital, Return on Equity, Return on Assets, Earnings Before Interest, Taxes, Depreciation and Amortization growth and/or Cash Flow (from operations) growth). Instead, ISS will disclose a company’s EVA performance as additional information within the research report and not in the Financial Performance Assessment (FPA). This is similar to the approach ISS used in 2017 for the FPA. ISS introduced the FPA as additional information in the research report in 2017 and, ultimately, incorporated it into the pay-for-performance assessment a year later. ISS may use a similar approach with EVA.

In addition to these policy updates, ISS provided clarification on its views on the use of TSR as an incentive metric, front-loaded awards and impact from regulatory updates, as well as updated its list of problematic pay practices as summarized in the below chart. For information on all ISS policy updates, please visit

Other Select ISS Policy Updates
Front-loaded Awards

Will likely recommend “Against” a company’s say on pay (SOP) vote for large multi-year awards that are intended to cover more than four years.

Updated Problematic Pay Practices

Added the definition of “Good Reason” whereby an executive could receive a windfall in the event of a corporate failure (such as bankruptcy or delisting).

ISS will not consider the definition to be problematic if it is in connection with a constructive termination (e.g., material reduction in compensation, title or role, etc.).

Incentive Metrics

Clarified that it does not advocate the use of any incentive metric over another (specifically TSR). ISS stated that the Board and Compensation Committee are best suited to determine the appropriate measures to incent executives to create long-term value for shareholders.

Updates due to Regulatory Changes

Updated its policy to reflect recent regulatory changes:

Elimination of 162(m) Tax Deductibility Exemptions: Will view pay programs negatively if a company shifts performance-based pay into fixed or discretionary forms of compensation.

Smaller Reporting Companies: Will continue to review the completeness of the disclosure. ISS will likely recommend “Against” an SOP vote if it is difficult to assess the compensation philosophy and practices.

Glass Lewis Policy Updates

Similar to ISS, Glass Lewis did not make changes to its pay-for-performance assessment for 2019. The firm did, however, clarify that its letter rating system (i.e., A, B, C, D and F) is not equivalent to the typical school grading system. In the policy update, Glass Lewis notes that receiving a “C” means that pay is aligned with performance. An “A” or a “B” indicates that the pay percentile is less than the performance percentile, and a “D” or an “F” means that the pay percentile is higher than the performance percentile.

Glass Lewis noted three voting policy updates related to compensation and diversity:

  1. If the Board does not have any female members, Glass Lewis will recommend a vote “Against” the Nominating Committee Chair and may extend the recommendation to other committee members, depending on factors including company size, state headquarters, and a company’s governance profile. Glass Lewis will take into consideration mitigating factors, such as a disclosed timetable for addressing female representation or an agreement with restrictions from a significant investor. The vote recommendation on Board diversity is in effect for 2019.
  2. Glass Lewis will generally recommend a vote “For” shareholder proposals that request additional information regarding employee diversity or the process for promoting diversity within the workforce.
  3. Glass Lewis will consider the addition of an excise tax gross-up, particularly if there is a prior commitment for no gross-up, as a factor that may influence a negative vote recommendation against the Compensation Committee.

In addition to these policy updates, Glass Lewis also noted that it will review the terms of a company’s recoupment or clawback policy. The mere presence of a policy that meets the legal minimum requirement will no longer suffice. Glass Lewis states that, at minimum, the recoupment should be triggered for a financial restatement. The lack of a comprehensive clawback policy may inform Glass Lewis’ overall opinion of a company’s compensation program.

Additionally, Glass Lewis provided insight on its views on front-loaded awards and contractual payments and arrangements, both summarized in the chart below. For all information related to Glass Lewis’ 2019 voting policies visit

Other Select Glass Lewis Policy Updates
Front-loaded Awards

Will review a company’s rationale for a front-loaded grant and will expect a commitment to not grant additional awards during the defined period of the award.

Contractual Payments and Arrangements

Will consider the amount of a “make whole” award as well as the process for determining the award size. Glass Lewis notes that the disclosure should include a meaningful rationale.

To evaluate severance and sign-on awards, Glass Lewis will review the size of the payment in relation to the amount of target compensation, amounts paid to other executives (including an executive’s predecessor) and the design of the payment.