Companies that are gearing up for the 2016 proxy season will have the benefit of three sets of frequently asked questions released by Institutional Shareholder Services (ISS) on December 18, 2015 – one on proxy voting policies and procedures, one on compensation plans and one on executive compensation.  Companies should be mindful of ISS’s proxy analyses in preparing their proxy statements for 2016 and in dealing with shareholder proposals.

The 78 non-compensation FAQs address a variety of different subjects, including proxy access, poison pills, charter and by-law amendments, director overboarding and shareholder proposals.  Two of the FAQs were highlighted by ISS; not surprisingly, both deal with proxy access.  In a situation where a shareholder proxy access proposal garnered majority support and a board subsequently implemented proxy access, ISS will consider the following factors in making a negative voting recommendation regarding the board (which may pertain to individual board members, the nominating and corporate governance committee or the entire board):

  • ownership thresholds above three percent;
  • ownership holding periods exceeding three years;
  • aggregation limits below 20 shareholders; and
  • nominee caps below 20%.

In evaluating proxy access nominees, ISS will take into account a multitude of factors concerning the nominee/nominator, the company itself and election specific factors.

Companies should note that ISS has changed its stance with respect to proposals for independent chairs.  Whereas prior policy resulted in a general recommendation for an independent chair proposal unless all ISS criteria were met, ISS will now take a “holistic” approach and look at leadership structure, governance practice and performance.

The FAQs on compensation plans and executive compensation address specific disclosure scenarios that may not be relevant to all companies.  Boards of public companies should review those FAQs to learn more about how ISS evaluates compensation arrangements and equity incentive plans.