The NASPP Blog

I think holiday brain is getting to me, because I’m starting to have flashbacks. I remember this time last year the stock plan world was buzzing about ISS’s “new” Equity Plan Scorecard, intended to revamp the way ISS analyzes stock plan proxy proposals. Fast forward to now: we’ve got a full season of proxy reporting behind us and are gearing up towards the next one (see the NASPP Blog: “ISS Scorecard: What’s New for 2016?“). While preparing for this year’s season, it may be helpful to look back at this past year and see how the scorecard really impacted stock plan proposals.

2015 Scorecard Post Mortem

In a recent memo, “The New Equity Plan Approval Landscape: A Post Mortem on the 2015 Proxy Season,” consulting firm Towers Watson looked back on the voting results of stock plan proposals brought to shareholders of S&P 1500 companies. A key question in evaluating the data was how did the proposals fare in light of the new scorecard? (remember, it was first used this year.) Did more proposals fail to get a passing vote? Let’s see how the the scorecard scored when looking at the overall outcome of stock plan proposals.

According to Towers Watson, the average shareholder support in equity plan votes actually rose, even if just slightly (up to 90% in 2015 from 87% in 2014). Only one company failed in its quest to gain shareholder support for an equity plan proposal. This outcome showed a decrease in failure rate (only 0.03% this year compared to 0.9% in 2014).

The Verdict on the Scorecard?

While it’s hard to attribute the above changes to any one variable, it’s probably safe to say that the scorecard didn’t hurt equity plan outcomes. It may have even helped, because it gave flexibility to companies to structure their practices and plans such that they could lose a few points here and gain a few points there, having a better idea about the impact those decisions would have on the scorecard results.  It wasn’t like a steep test with a high curve that makes it nearly impossible to succeed. For the most (emphasis on most) part, companies came through unscathed. While the flexibility of the scorecard may have contributed to that success, even Towers Watson points to the fact that this could also be attributed to factors such as improved Compensation Discussion and Analysis and Say-on-Pay. From their memo:

This modest increase in favorable outcomes is notable in a year in which ISS updated its methodology, the first major revamp in nearly a decade, and even more so when we consider that the level of negative ISS vote recommendations on equity plans stayed consistent with 2014, at 12%. The 2015 voting outcomes suggest that the EPSC methodology gave companies greater flexibility to structure key equity plan provisions and appropriately size their share requests.

With this added flexibility, however, came greater accountability as companies in our experience devoted much more preparation and analysis time for this year’s equity plan proposals, including more outreach to shareholders to understand individual voting policies and decision points. Additionally and equally as important, many companies took the opportunity to enhance their proxy disclosures to tell a more complete story around the share request. In short, the equity plan proposal enhancements we saw this year somewhat mirror the evolution of the Compensation Discussion and Analysis in recent years as a result of say-on-pay votes.

What’s Next?

While the overall structure of the scorecard is unchanged, there are some other changes for 2016. If you missed the earlier blog from Barbara Baksa on this topic (“ISS Scorecard: What’s New for 2016?“), be sure to check it out.

ISS’s updated FAQ for the 2016 scorecard has also been released.

-Jenn