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 Partner and Senior Legal Consultant in Mercer's Law & Regulatory Group (L&R) based in New York. She specializes in technical legal and regulatory issues affecting executive compensation and corporate governance. She focuses on SEC disclosure, tax, employment and change in control agreements, equity programs, and employee benefit issues that arise in the context of corporate transactions and initial public offerings.
is a Parter and the Head of Mercer’s US & Canada Executive Rewards Practice. He advises US and Canadian companies’ Compensation Committees and senior leadership teams on a wide variety of executive compensation topics and Board of Director pay issues. In addition, he leads the go-to-market strategies, as well as the development of intellectual capital and technical solutions, for Mercer’s Executive Rewards Practice in the US and Canada.