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.

The new disclosure of the CEO pay ratio in 2018 was met with a surprisingly muted response from the press and shareholders. Companies had been concerned that the CEO pay ratio would be used as a way to shame companies with high levels of CEO pay relative to the median worker, yet for the most part criticism of CEO pay was mild.

Near the end of 2018 however, institutional shareholders began to express greater interest in the CEO pay ratio from two directions:

  1. A group of 48 institutional investors recently sent a letter to many large companies requesting more robust disclosure about their workforces.
  2. The Office of the New York State Comptroller (NYSC) recently issued a press release stating that they have submitted shareholder proposals to several companies to incorporate considerations about the broader workforce into their CEO pay decision making and pay philosophy.

Shareholder Letter from 48 Institutional Investors

The group of institutional investors believe supplemental information will provide reference points for understanding the company’s workforce and will help investors put the pay ratio into context. Their perspective is that human capital is a critical asset of the company and that investors will benefit from a better understanding of a company’s approach to human capital management. The 48 companies are for the most part made up of unions and pension funds (e.g., CalPERS, NYSC, AFL-CIO) so their view may not be representative of other institutions (e.g. index funds, hedge funds, etc.). Supplemental disclosures cited as useful by these investors are largely focused on workforce demographics (i.e. use of seasonal workers, geographic locations, etc.), median employee detail (i.e. job function, education levels, etc.) and the company’s overall compensation philosophy. The letter acknowledges that some of this information has already been voluntarily disclosed by companies and some may be available elsewhere.

New York State Comptroller Proposal

Based on the NYSC’s press release, companies responding and reaching agreement with the NYSC in 2018 are CVS Health, Macy’s, Microsoft,, The TJX companies; companies reaching agreement in 2017 are BB&T, Discovery Communications and Regeneron Pharmaceuticals. The NYSC withdrew the proposals after the companies agreed to reexamine their CEO and executive pay and adopt policies that take into account the compensation of the rest of their workforces. The proxy disclosure for two of these companies, CVS Health and Discovery Communications, provided more robust disclosure around CEO pay ratio than what is typically seen, such as enhancements to employee base pay/benefits and pay considerations for their global workforce. It is unclear if there are other pending shareholder proposals from the NYSC on this topic.

Current CEO Pay Disclosure Practice

Very few companies currently provide the kind of supplemental disclosures requested by the institutional investors. With approximately 90% of the S&P 500 having disclosed 2018 CEO pay ratios at this point, Compensation Advisory Partners researched the prevalence of the requested information. Among the S&P 500, only about 25% of companies disclosed any specific geographic information on their employee population as part of the pay ratio disclosure. This was primarily discussed as the number of U.S. employees versus non-U.S. employees or in the context of the de minimis exemption, where companies can exclude up to 5% of the non-U.S. employee workforce. Further, the type of workers employed by the companies (i.e. seasonal, part-time, temporary, etc.) was typically disclosed with minimal detail on the relative size of the employee populations. Only 1% disclosed a headcount of part-time employees and a minority of companies provided context around their workforce demographics.

Median employee detail was included in a minority of disclosures, with 14% providing any detail at all. The most common disclosure (85%) provided was the geographic location of the median employee’s employment. Employment/pay type (full/part time, salaried/hourly) was also prevalent; approximately two-thirds and one-third of these disclosures included this information, respectively. Half of the companies providing median employee detail gave information on the role of the median employee, often related to job title, job function, or place of employment (e.g. factory). Incentive compensation eligibility, education level, and compensation mix were rarely provided, with less than 5% of companies sharing such detail.

Detail on Median Employee

Type of Description Prevalence of Disclosure
Median Employee 62 of 446 (14%)
Geographic Location of Employment 53 of 62 (85%)
Employment Type (full/part time) 41 of 62 (66%)
Pay Type (salaried/hourly) 23 of 62 (37%)
Role (job title or type of work) 30 of 62 (48%)
Bonus Eligibility (eligible/non-eligible) 3 of 62 (5%)
Equity Eligibility (eligible/non-eligible) 1 of 62 (2%)
Compensation Mix 2 of 62 (3%)

Looking Forward

We do not expect that many companies will significantly expand their disclosures around workforce demographics in 2019 proxy statements. We think that what these shareholders are requesting would require fundamental change to the CEO pay ratio disclosure and is substantially different from the original intent of the CEO pay ratio. For the most part, we expect the information disclosed to remain consistent with what companies provided in 2018, with any changes in disclosure being modest (e.g. how many companies will exercise the option of reusing the same median employee, will they provide a comparison of the 2019 pay ratio to the 2018 pay ratio).

Looking beyond 2019, companies should recognize that there is an appetite among some of the larger institutional investors for greater information on the makeup of a company’s human capital. We suspect that the requests in these shareholder letters, combined with some of the requests in shareholder proposals around gender pay equity, may serve as a basis for new legislation from the Democratic majority in the House of Representatives requiring disclosure of workforce demographics and pay equity statistics. While any proposed legislation is unlikely to become law before 2021, we expect that shareholder requests for additional information may evolve from a letter into actual shareholder proposals similar to those submitted by the NYSC.

Compensation Advisory Partners LLC (“CAP”) appreciates the opportunity to comment on the draft 2019 proxy voting policies related to compensation.

CAP is an independent consulting firm that helps clients make informed decisions about executive and non-employee director compensation and related corporate governance matters. We believe compensation should be used as a management tool to support business strategy. Our consultants serve as independent advisors to Boards and senior management at many leading companies and share ISS’ interest in advancing sound corporate governance.

Beginning with fiscal years ending on or after December 31, 2017, companies are required to disclose the ratio that compares the compensation of the CEO to the compensation of the median employee (pay ratio). This disclosure was part of the Dodd-Frank Wall Street Reform and Consumer Protection Act signed into law in 2010.

Compensation Advisory Partners LLC (CAP) researched early pay ratio disclosures. As of March 9, 2018, we obtained pay ratios from 150 companies with a median revenue of $2.1B from a cross-section of industries.

Pay Ratio

The median pay ratio disclosed by these companies is 87x. The lowest ratio is 1x (Apollo Global Management, Dorchester Minerals and The Carlyle Group) and the highest ratio is 1465x (Fresh Del Monte Produce Inc.).

Summary Statistics Median Employee Pay Median CEO Pay Pay Ratio
75th percentile $88,612 $10.5M 172x
Median $58,256 $5.6M 87x
25th percentile $43,966 $2.5M 36x

As expected, the pay ratio correlates with company size, with larger companies disclosing higher ratios. CEO pay varies greatly depending on the size and complexity of the organization. Employee pay has less variability since it reflects the job function and does not vary significantly based on the size of the organization. The median ratio in our sample of 150 companies ranges from 20x for companies with revenue less than $500M to 218x for companies with revenue greater than $15B.

20x 54x 84x 157x 183x 218x <$500M $500M-$1B $1B-$5B $5B-$10B $10B-$15B >$15B Median Pay Ratio by Revenue Size

Few companies, 15, disclose a supplemental pay ratio with only a handful of companies (three) disclosing more than one additional ratio. These companies with supplemental ratios are typically adjusting the CEO’s pay which may exclude anomalies such as a one-time special bonus or equity award. Interestingly, three companies disclosed a higher supplemental pay ratio likely to provide context for a large year over year increase in the 2019 proxy statement.

Location of Disclosure

Nearly 70% of companies disclose the pay ratio after the Potential Payments upon Termination or Change in Control section of the proxy statement. Approximately 25% of companies disclose the pay ratio just before or after the Summary Compensation Table and a small minority, 5%, disclose it in the Compensation Discussion and Analysis (CD&A).

Pay ratio is typically not disclosed in the CD&A, signaling to shareholders that the pay ratio is not used to determine CEO pay levels. Additionally, around 25% of companies include language in the disclosure that the ratio should not be used to compare pay levels to other companies within the industry, region of the country or revenue size.

Measurement Date

The SEC’s final rules give companies the flexibility to use any date within the last quarter of the fiscal year to identify the median employee. Companies most commonly used the last day of the fiscal year or a date within the last month of Q4. It is also common for companies to use a day within the first month of Q4 to identify the median employee.

Measurement Month Prevalence Measurement Date Prevalence
First Month of Q4 29% Last day of Q4 44%
Second Month of Q4 8% First day of Q4 17%
Third Month of Q4 57% Other 33%
Not Disclosed 6% Not Disclosed 6%

Exclusions from Median Employee Determination

Approximately one-third of companies excluded a portion of their workforce when determining the median employee. The most common rationale is the de minimis exemption (approximately 55%) whereby a company can exclude up to 5% of its non-U.S. employee workforce. Companies also commonly cited an acquisition or corporate not responsible for setting pay (e.g., independent contractors) as rationales for excluding certain employee groups.


As more companies continue to file their proxy statements in the coming weeks, we will likely see larger pay ratios, particularly as companies with a significant part-time workforce begin to disclose their ratios. We do not anticipate an increasing trend in the number of companies filing supplemental pay ratios though it will be interesting to see the rationale for those that do. We expect to continue to see companies placing the pay ratio outside of the CD&A with most disclosing it after the Potential Payments upon Termination or Change in Control section.

Institutional Shareholder Services (ISS) and Glass Lewis & Co. (Glass Lewis) recently announced updates to their proxy voting guidelines for the 2018 proxy season. These updates will take effect for shareholder meetings beginning on February 1, 2018 for ISS and January 1, 2018 for Glass Lewis. CAP has summarized the compensation-related policy updates and highlighted some of the other key changes to both ISS and Glass Lewis’ policies.

ISS Updates

CEO Pay-for-Performance Assessment

ISS modified their existing approach to evaluating CEO pay-for-performance for U.S. companies and provided guidance as to how their Financial Performance Assessment (“FPA”) will be incorporated as a secondary measure into their quantitative assessment:

Multiple of Median (MOM) Test (current primary measure): For S&P 500 companies, ISS reduced the threshold for a “Medium” concern from 2.33x to 2.00x the median pay of peers. The “High” concern threshold remains unchanged at 3.33x. Current thresholds remain unchanged for non S&P-500 companies.

Relative Degree of Alignment (RDA) Test (current primary measure): ISS will now calculate total shareholder return (“TSR”) by averaging the daily closing prices for the beginning and end months of the TSR measurement period. Previously, ISS measured TSR using a point-to-point on the beginning and last days of the measurement period. The change in methodology is intended to reduce stock price volatility.

Pay TSR Alignment (PTA) Test (current primary measure): No change

Financial Performance Assessment (new secondary measure for 2018): After introducing a relative measure of CEO pay and financial performance alignment in 2017 as a qualitative consideration, ISS received positive feedback from investors and will now include in its quantitative CEO pay-for-performance assessment as a secondary measure. The FPA will utilize three or four financial metrics (depending on industry) and compare 3-year performance and 3-year CEO pay. A company’s 3-year CEO pay rank compared to peers will be subtracted from 3-year financial performance rank compared to peers and produce a result ranging from -100 to +100.

ISS’ CEO pay-for-performance assessment will now be determined as follows:

  1. Initial Quantitative Concern Level: Will continue to be determined by the results of the three primary pay-for-performance tests (MOM, RDA, and PTA)
  2. Overall Quantitative Concern Level: Will reflect a final concern level which may or may not be impacted by the FPA test as described below

The FPA may impact the Overall Quantitative Concern level only if a company has a Medium concern under the Initial Quantitative screen or a Low concern result under the Initial Quantitative Screen [but which results border the Medium concern threshold under any of the three initial measures (MOM, RDA, PTA)]. See table below:

Quantitative Concern Thresholds: S&P 500


Eligible For FPA Adjustment

Medium Concern

High Concern













The FPA could potentially modify a concern level from Medium to Low if relative financial performance is strong, or from a Low to a Medium if relative financial performance is weak. The FPA will have no impact on a Low Initial Quantitative Concern if the company is well below the FPA Adjustment threshold (defined above) and will have no impact on a High Initial Quantitative Concern.

The Overall Quantitative Concern level will be the indicator for any pay-for-performance disconnect resulting in an in-depth qualitative review.

More information on the 2018 CEO pay-for-performance assessment mechanics can be found here:

Equity Plan Scorecard

ISS made changes to their approach to evaluating equity plan proposals:

S&P 500 Companies’ Passing Score: The passing score for S&P 500 companies will now be 55 points, up from 53 points. There are no changes to the passing score for all other companies.

Equity Holding Requirements: Companies will either receive a full point for having a holding requirement of at least 12 months (a reduction from 36 months) or no points for less than 12 months. No points will be earned if the holding requirement is only applicable until ownership guidelines are met.

CEO Vesting: A full point will now be earned if CEO equity award vesting is at least 3 years compared to the previous requirement of 4 years. No points will be earned if vesting is less than 3 years.

Change in Control Vesting: Full points will only be awarded for (i) performance-based awards, if acceleration is limited to actual performance achieved, pro-rata of the target award, a combination of both actual and pro-rata, or the performance awards are forfeited or terminated and for (ii) time-based awards, if acceleration cannot be automatic single-trigger or discretionary. Any other provisions will receive no points.

Broad Discretion to Accelerate Vesting: Full points will only be earned when discretion is limited to cases of death and disability only. Discretion in any other instance (such as a change in control) will result in no points.

More information on ISS’ Equity Plan Scorecard can be found here:

CEO Pay Ratio

ISS will display the median employee pay figure and the CEO pay ratio in its reports; however, it will not impact their voting recommendations for 2018.

Board Responsiveness

If a company received less than 70% of votes cast, ISS will now also review the timing and frequency of engagements and whether independent directors participated, disclosure of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition and disclosure of meaningful actions address the issues that contributed to the low level of support.

Non-Employee Director Pay

ISS is introducing a policy in which they will recommend voting AGAINST board/committee members responsible for setting director non-employee director compensation if there is a recurring pattern (i.e., two or more years) of excessive pay without compelling rationale or mitigating factors. This policy will not go into effect until the 2019 proxy season and the purpose is to identify a pattern of extreme outliers.

Gender Pay Gap

ISS is introducing a new policy related to voting recommendations on shareholder proposals relating to gender pay gaps and will evaluate such proposals on a case-by-case basis. In making a vote recommendation ISS will consider (i) current policies and disclosures on diversity and inclusion and the use of equitable compensation practices, (ii) whether the company has been the subject of any recent controversy, litigation or regulatory actions related to gender pay gap issues and (iii) whether the company’s reporting relating to gender pay gap policies or initiatives lags its peers.

Board Diversity

ISS will now highlight boards with no gender diversity, though now there will be no vote recommendations made in 2018 based on this information.

Glass Lewis

NEO Pay-for-Performance Assessment

Glass Lewis did not make any changes to their model but clarified their current scoring system and highlighted that a “C” grade is a desirable outcome indicating pay and performance are aligned.

CEO Pay Ratio

Similar to ISS, Glass Lewis will display the pay ratio as a data point in their reports, but it will not be a determinative factor in their voting recommendations.

Board Responsiveness

Glass Lewis has lowered the threshold in which they expect the board to respond to shareholder dissent of any management proposal of more than 20% of votes cast (prior threshold was 25%), especially in the case of a compensation or director election proposal. Additionally, for companies with a dual-class share structure, Glass Lewis believes the board should respond when vote results indicate that a majority of unaffiliated shareholders supported a shareholder proposal or opposed a management proposal.

Board Diversity

In 2018, Glass Lewis will not make recommendations based solely on the diversity of the board; however, beginning in 2019 Glass Lewis will generally recommend voting against the nominating committee chair of a board that has no female members. The vote may extend to other nominating committee members depending on the size of the company, the industry in which the company operates and the governance profile of the company. Glass Lewis will consider mitigating features such as whether the company is outside of the Russell 3000, whether sufficient rationale is provided for not having any female board members or the company discloses plans to address the lack of diversity.

The summary above highlights some changes to ISS and Glass’ Lewis policies for 2018 and are not intended to be all encompassing. For all information related to ISS and Glass Lewis’ 2018 voting policies please visit:


Glass Lewis:

Discussing JPMorgan’s Jamie Dimon’s comments to shareholders on CNBC, May 28, 2015.

In today’s post Dodd-Frank executive compensation market, most companies are familiar with, and many have implemented, “shareholder-friendly policies” such as clawbacks, hedging/pledging, and stock ownership guidelines. Further, companies have grown increasingly savvy on the executive compensation policies of shareholder advisory firms such as Institutional Shareholder Services (ISS) and Glass-Lewis—specifically as they relate to Say on Pay resolutions (SoP). Most executive compensation professionals—ourselves included—do not deny the influence on voting results when a company receives the dreaded Against recommendation from one or more of the proxy advisory firms. Our research shows that when ISS and Glass-Lewis recommend Against an SoP resolution, there is an approximate 20-30% and 5-15% reduction in the voting results, respectively.

Is this causation or simply correlation? Perhaps that question cannot be answered so easily, but it is possible to study how large institutional shareholders vote on SoP in order to try and understand what factors influence their voting. Companies are already aware of who their largest shareholders are, but an understanding of their voting policies and practices can provide insights on potential shareholder reaction to executive compensation program design, program modifications, and company performance.

To gain a deeper understanding of how large institutional shareholders tend to vote on SoP, CAP compiled a list of the top 25 institutional shareholders (in terms of assets under management) that were invested in at least 250 of the companies in the S&P 500 (“Institutional Shareholders”). CAP collected voting data from Proxy Insight, a leading provider of global shareholder voting analytics.

Among these Institutional Shareholders, 92% (23 out of 25) have their own “in-house” voting policies. What that means, is that even if ISS or Glass-Lewis makes a recommendation, the Institutional Shareholder will make the final determination on its voting decision. Based on 2016 voting results, Institutional Shareholders voted Against SoP 6.6% of the time, at median, for S&P 500 companies. When we expanded the scope of our review to all U.S. public companies, we found that Institutional Shareholders voted Against SoP 8.2% of the time, at median.

Source: Proxy Insight

Why do Against votes occur more frequently among all U.S. public companies compared to S&P 500 companies? This outcome could reflect that S&P 500 companies, in the aggregate, are larger and tend to have the resources to develop and maintain more balanced compensation programs. For example, a long-term incentive (LTI) program that is composed of a portfolio of time- and performance-based awards is viewed positively by institutional shareholders and is more common among S&P 500 companies versus all U.S. Companies. S&P 500 companies also have the capacity to lead more extensive shareholder outreach campaigns, which allows them to explain the rationale for their programs.

Although most Institutional Shareholders vote For SoP in most cases, there are some that will vote Against SoP 10% of the time or more. When voting on S&P 500 Companies, 5 out of 25 of the Institutional Shareholders vote Against 10% of the time or more. When voting on all US companies, 11 out of 25 vote Against 10% of the time or more.

Institutional Shareholder

Percent of Time Voting Against SoP

Institutional Shareholders Voting Against S&P 500 Companies 10% of the Time or Greater



BNY Mellon


Dimensional Fund Advisors, Inc.


California Public Employees’ Retirement System (CalPERS)




Institutional Shareholders Voting Against U.S. Companies 10% of the Time or Greater

BNY Mellon




Dimensional Fund Advisors, Inc.


California Public Employees’ Retirement System (CalPERS)


Canada Pension Plan Investment Board (CPPIB)




AllianceBernstein LP


T. Rowe Price Associates, Inc.


AXA Investment Managers


Principal Global Investors LLC


RBC Global Asset Management, Inc.


Source: Proxy Insight

CAP suggests that companies should track the voting tendencies of their major institutional shareholders, particularly if they vote Against more frequently. Companies may want to look at historical voting on SoP and should review their institutional shareholders’ proxy voting guidelines—particularly as it relates to compensation. For example, BNY Mellon voted Against SoP at 27% of S&P 500 companies and Against SoP at 44% of all U.S. companies. A review of BNY Mellon’s proxy voting guidelines states that they “consider proposals on a case-by-case basis in situations where:”

  • There are tax gross-ups or make-whole provisions in CIC/severance agreements
  • The company has poor relative stock performance, especially when compensation is deemed excessive compared to peers
  • The company fails to address compensation issues identified in prior meetings
  • There appears to be an imbalance between performance-based and time-based long-term incentive awards

Therefore, if one of your company’s major shareholders is an institutional investor that supports SoP less frequently, it is important to understand their voting guidelines, especially if your executive compensation program has practices or includes features that are viewed negatively (i.e. tax gross ups, 100% time-based LTI program, etc.).

Although most Institutional Shareholders have in-house voting policies, they do still subscribe to proxy advisory research from ISS and Glass-Lewis. Among Institutional Shareholders, 88% (22 out of 25) subscribe to ISS and 48% (12 out of 25) subscribe to Glass-Lewis. While there is only one out of these 25 Institutional Shareholders that generally automatically-votes with ISS (Principal Global Investors LLC), CAP determined that there is a correlation between an ISS or Glass-Lewis Against recommendation and voting results. When subscribing to ISS or Glass-Lewis, we found that Institutional Shareholders’ voting aligns with an Against recommendation, at median, 62% of the time for ISS subscribers and 31% of the time for Glass-Lewis subscribers. The data exhibits a greater correlation (approximately double) of vote alignment with an Against recommendation from ISS than Glass-Lewis. This may occur because Glass-Lewis recommends Against about twice as often as ISS does (16% of companies receive an Against recommendation from Glass-Lewis vs. 8% from ISS).

Source: Proxy Insight

As mentioned above, it is not easy to confirm whether the alignment of an Against recommendation from ISS or Glass-Lewis and voting outcomes is the result of causation or simple correlation—perhaps it is a bit of both. However, when companies are trying to understand the voting practices of their institutional shareholders, knowledge of how their institutional shareholders vote in relation to an ISS or Glass-Lewis Against recommendation is a valuable input, particularly in cases where the alignment is very consistent. Since the recommendation from ISS and Glass-Lewis precedes voting, companies can predict potential outcomes based on shareholder tendencies—particularly in cases where the institutional shareholders voting tendencies are correlated with an Against recommendation a high percentage of the time.

Institutional Shareholder

Percent of Time Voting with Rec.

Institutional Shareholders Voting with ISS Against Rec. Greater than 85% of the Time

Deutsche Asset & Wealth Management


Principal Global Investors LLC


Canada Pension Plan Investment Board (CPPIB)


RBC Global Asset Management, Inc.


Dimensional Fund Advisors, Inc.


AllianceBernstein LP


BNY Mellon


Institutional Shareholders Voting with Glass-Lewis Against Rec. Greater than 50% of the Time

California Public Employees’ Retirement System (CalPERS)


Dimensional Fund Advisors, Inc.


BNY Mellon


Source: Proxy Insight

In examples where Institutional Shareholders do not have a high correlation of voting with an ISS or Glass-Lewis Against recommendation, this can generally be attributed to those Institutional Shareholders that vote For SoP a high percentage of the time in line with their own voting policies.

In our view, it is important for companies to develop a compensation program that aligns with the business strategy, promotes shareholder growth while minimizing risk, and attracts and retains key talent. Once a framework is established, companies can then overlay an understanding of the voting practices of their institutional shareholders, including specific proxy voting guidelines, voting history, as well as the alignment of voting results with ISS or Glass-Lewis recommendations. This becomes more important in cases where the institutional shareholder votes Against SoP more frequently than the norm or follows ISS and Glass-Lewis recommendations a very high percentage of the time. While some companies may engage in comprehensive shareholder outreach programs, other companies do not have the resources for large-scale shareholder engagement. For these companies, an understanding of their institutional shareholder voting policies and practices becomes an important consideration when it comes to compensation program plan design.


Institutional Shareholders Used in this Analysis

AllianceBernstein LP

Legg Mason Partners Fund Advisor, LLC.

AXA Investment Managers

MFS Investment Management, Inc.


Morgan Stanley Investment Management, Inc.

BNY Mellon

Norges Bank Investment Management

California Public Employees’ Retirement System (CalPERS)

Northern Trust Investments

Canada Pension Plan Investment Board (CPPIB)

Principal Global Investors LLC

Deutsche Asset & Wealth Management

RBC Global Asset Management, Inc.

Dimensional Fund Advisors, Inc.


Federated Investment Management Co.


Fidelity Management & Research Co.

SSgA Funds Management, Inc. (State Street)

Fidelity SelectCo

T. Rowe Price Associates, Inc.

Franklin Templeton Investments

Vanguard Group, Inc.

Goldman Sachs Asset Management LP

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