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That's a FAQ, Jack! New Interpretations from ISS

"On December 19, 2016, ISS issued updates to several of its key FAQs, including those on Equity Compensation Plans, Executive Compensation Policies, and also the explanation of ISS' Pay-for-Performance Mechanics. [This article summarizes] the specific updates under each FAQ and the P4P Mechanics."

Maximum Tax Withholding and Liberal Share Counting: A Deadly Combination

"ISS issued its new FAQs regarding equity compensation plans [in a document dated Dec. 16, 2016]. FAQ #32 deals with the issue of withholding at the maximum tax rate coupled with liberal share counting which permits shares withheld to be added back to the plan's share authorization."

Caution on Transferable Equity Award Provisions

"ISS indicates that it will recommend against equity plan proposals if the details of an ongoing [Transferable Stock Option (TSO)] program are not provided to shareholders.... If a company's equity plan provides for the transferability of equity awards to third parties, and the [TSO disclosures] are not made (which ISS will then evaluate on a case-by-case basis), then the company can expect a negative ISS vote recommendation on their equity plan proposal even if they have run the ISS Equity Plan Scorecard model and believe the plan will pass muster."

ISS Policy Updates for 2017

"ISS announced that in its 2017 pay for performance analyses (typically undertaken as part of ISS' evaluation of a company's say-on-pay proposal), it will add six relative quantitative performance metrics to its qualitative analysis.... ISS may later include these six performance metrics in the quantitative analysis section of its pay for performance analysis -- perhaps for the 2018 proxy season.... ISS has indicated that the weight afforded each of these six metrics will vary by industry, though it did not release what those weights will be."

Share Withholding at Maximum Tax Rate

"Many existing equity compensation plans specifically limit share withholding to the minimum statutory tax rates in order to avoid potentially negative accounting consequences, i.e., liability accounting instead of fixed, grant-date accounting for equity awards. So the question has been raised whether amending an existing equity plan that limits share withholding to the minimum statutory tax rate would pose an issue under the exchanges rules. NYSE and NASDAQ have now both issued guidance on this issue which should help companies as they consider adopting ASU 2016-09 and implementing maximum share withholding."

ISS and Glass Lewis Issue 2016 Policy Updates

"Glass Lewis now indicates that if it identifies egregious compensation practices, it may not only recommend against the Say-on-Pay vote but also recommend against the compensation committee based on the practices or actions of the committee during the year.... ISS will generally recommend against the Say-on-Pay proposal where there is an external management structure in place and there is insufficient detail in the company's disclosures for ISS to perform a comprehensive pay-for-performance analysis."

ISS Releases 2015 Draft Policies

"ISS is proposing to use an equity plan scorecard composed of three categories: Plan Cost; Plan Features; and, Grant Practices. In some respects, it appears that ISS is simply reshuffling some of the existing components of its equity plan proposal policy.... ISS also indicated that the Equity Plan Scorecard would have its factors and weightings keyed to company size and status ... ISS also indicates that its options overhang carve-out policy would no longer be available. Likewise, companies would no longer be able to make a burn rate commitment as they had in the past to avoid a negative ISS vote recommendation when their burn rate exceeded their industry burn rate cap."

ISS Issues 2014-2015 Policy Survey Results

"ISS highlighted the responses to several survey questions that dealt with [pay-for-performance (P4P)]. ISS indicates that investors liked the idea of having CEO pay limits relative to company performance (27% of investors supported, while only 12% of issuers agreed). The magnitude of CEO pay was considered when evaluating pay practices by 24% of investors and 50% of issuers. Based on these responses, and the additional follow-up questions, ISS may propose a refinement to its P4P policy that does more to evaluate the CEO pay versus both absolute and relative measures."

ISS 'Burn Rate' Caps: 2009-2014

"As part of its analysis of equity compensation plan proposals, Institutional Shareholder Services analyzes a company's 'burn rate' compared to maximum amounts established by ISS for Russell 3000 and non-Russell 300 Global Industry Classification Standard groups [GICS].... If a company's ISS burn rate exceeds GICS group ISS burn rate cap, ISS will recommend AGAINST the company's equity compensation plan proposal. [A company that exceeds] their allowable burn rate cap can avoid a negative vote recommendation from ISS by publicly committing ... to maintain its burn rate over the next three fiscal years of equal to or less than its GICS group ISS burn rate cap[.]"

ISS Accepting Peer Group Updates Starting November 20, 2013

"ISS will be accepting updates to Russell 3000 companies' self-selected peer groups from November 20, 2013 [through] December 9th.... If your company revised its peer group since last year's proxy and used this revised peer group for compensation decisions that were made for the year that will be required to be disclosed in your next proxy ... for shareholder meetings between February 1, 2014 and September 15, 2014, you should consider participating so that ISS has your correct self-selected peer group when it develops its own peer groups for assessing your company[.]"