ISS’s Equity Plan Scorecard: A New Era in Public Company Equity Compensation Plans
Publicly-traded companies often establish equity compensation plans to incentivize executives and directors and align their interests with the interests of the company. Because issuing shares under an equity compensation plan could dilute the interests of the company’s shareholders, the New York Stock Exchange and the NASDAQ Stock Market generally require shareholders to approve equity compensation plans, as well as any material amendments to such plans.
Proxy advisory firms, including Institutional Shareholder Services, Inc. (“ISS”), are influential in the proxy voting process, and their analysis and recommendations affect the votes of the shareholders of publicly-traded companies. In recent years, proxy advisory firms have more closely scrutinized equity compensation plans before recommending that shareholders vote for approval of an equity compensation plan.
In late 2014, ISS, the largest proxy advisory firm, significantly changed the manner in which it evaluates equity compensation plans by implementing its Equity Plan Scorecard (the “Scorecard”). The Scorecard is predicated on detailed guidelines used by ISS when determining if it will recommend that shareholders vote for approval of an equity compensation plan and should be considered by publicly-traded companies when designing or amending their equity compensation plans. The plans subject to the Scorecard include stock option plans, restricted stock plans, omnibus equity plans, and stock-settled stock appreciation rights plans.