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ISS has announced several changes to the Equity Plan Scorecard for the 2019 proxy season. Here are the four most significant changes plus one thing that hasn’t changed.
1. CIC Provisions Get Points Just for Showing Up. In prior years, ISS awarded points for CIC provisions only if the provisions met certain conditions (e.g., no single-trigger acceleration of vesting). For 2019, however, ISS will award full points under the EPSC if the plan describes, with specificity, how service-based and performance-based awards will be treated in the event of a CIC, regardless of what that treatment actually is. No points will be awarded under the EPSC if the plan is silent or provides for board discretion over the treatment of awards.
Enjoy it while you can. My guess is that ISS is trying to encourage companies to commit to how awards will be treated in a CIC and make better disclosures, perhaps with a view towards tightening up their guidelines in the future.
2. Ten Years Is Too Long. Because companies no longer have to submit their stock plans to shareholder approval every five years under Section 162(m), ISS has increased the weighting on the plan duration factor to encourage companies to resubmit their plans for shareholder approval more frequently than necessary under exchange listing requirements.
3. And 20% Is Too Much. ISS has announced a new “deal breaker”: ISS will recommend voting against any plans that it estimates will be “excessively dilutive to shareholders' holdings.” How much is excessive? 20%, according to ISS.
4. ISS Likes Per-Person Award Limits. ISS notes that some former Section 162(m) practices are also good governance practices and, thus, ISS might view removal of related plan provisions negatively when evaluating a company’s stock plans. In particular, ISS notes that it would view removal of per-person limits on grants under the plan negatively.
5. Some Things Haven’t Changed. Actually, ISS hasn’t changed most of the EPSC. But in particular, the passing scores remain at 55 for S&P 500 companies and 53 for everyone else.
For more information, see ISS’s FAQ on US Equity Compensation Plans. The new policy is effective for shareholder meetings after February 1, 2019.
P.S—On a completely different topic, I still have not received the paper copy of Form 3921 that I ordered back on January 4 (“A Government Shutdown Doesn’t Shut Down Your Stock Plan”) so I guess the IRS stopped filling orders for tax forms during the shutdown. Hopefully they’ll get through the backlog of orders before the government potentially shuts down again in three weeks.
A note on the artwork: I wanted to use a photo of a football scorecard (like a baseball scorecard but for football), since the superbowl is this week and this blog entry is about a type of scorecard. But it turns out there's no such thing, at least not in the world of stock photos.
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