In December 2018, Institutional Shareholder Services (“ISS”) published updates to its FAQs for its U.S. Compensation Policies and its policies related to U.S. Equity Compensation Plans with respect to annual meetings occurring on or after February 1, 2019.  While ISS did not make major changes for 2019, reporting companies should be aware of the following key updates.

  • The passing scores for all U.S. Equity Plan Scorecard (“EPSC”) models remain the same as in effect for the 2018 proxy season. However, ISS made the following notable changes and clarifications to EPSC’s scoring model:
    • Full points will be awarded for the change in control (CIC) vesting factor if the plan discloses with specificity the CIC vesting treatment for both time- and performance-based awards. If a plan is silent on CIC vesting treatment or provides for discretionary vesting, then no points will be awarded for this factor.
    • Weighting on the plan duration factor has been increased to encourage plan resubmissions more often than listing exchanges require (and following the repeal of Section 162(m), which required periodic stockholder reapproval). To receive full points for plan duration, the proposed share reserve should last five to six years or less (based on the issuer’s 3-year annual average burn rate).
    • Equity plan amendments that involve removal of general references to Section 162(m) qualification (including references to approved metrics for use in performance plan-based awards) will be viewed as administrative and neutral. However, the removal of individual award limits in