ISS's 2024 equity plan assessment methodology
Equity awards are the largest component of most executive pay packages so securing shareholder approval of an equity plan is critical.
Unlike say-on-pay proposals, which are advisory and nonbinding on the company, proposals to adopt or amend an equity plan are binding. If the proposal fails to receive shareholder support, the company can’t issue equity awards. A key step in obtaining approval of an equity plan or plan amendment is securing a favorable recommendation from proxy advisor Institutional Shareholder Services (ISS). ISS uses a proprietary equity plan scorecard (EPSC) and qualitative assessments to evaluate equity plan proposals, as described in its equity compensation plan FAQs. Investors that rely on the proxy adviser’s evaluations may strictly follow ISS voting recommendations or use ISS analyses — particularly plan cost and burn rate — to make an independent voting decision.
This article reviews how equity plan proposals fared in 2023 and provides an overview of how ISS assesses equity plan proposals, including methodology updates for 2024 that are effective for shareholder meetings on or after February 1, 2024. Appendices offer details on how ISS calculates burn rate and evaluates stand-alone director equity plans and plan amendments.
is a Senior Principal in Mercer's Law & Regulatory Group (L&R), which is a team of lawyers who track and analyze legislative, regulatory, judicial and other technical issues related to executive compensation and corporate governance. L&R provides expert analyses on a variety of US and Canadian compliance and policy matters, and develops leading-edge intellectual capital for Mercer consultants and clients. Amy provides advice to consultants and clients on securities and corporate governance issues affecting executive pay in North America. Amy advises clients on legal compliance and risk mitigation issues related to executive compensation and corporate governance. She serves clients in industries such as financial services, natural resources and energy, consumer goods and retailing, food and beverage, manufacturing, and utilities. She is a leading Mercer expert in securities law compliance and corporate governance.
leads Mercer's Executive Rewards (ER) Practice in the US & Canada, and is responsible for leading the strategic vision for the practice and driving subject matter expertise and thought leadership on executive compensation-related topics. David has been consulting on executive compensation and related issues with prominent publicly-traded companies and privately-held organizations for nearly 20 years.