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Boards are being advised to assess how their equity plans stack up against ISS’s new approach to evaluating them, but some consultants have said the latest document does not provide enough clarification. In December, ISS released its FAQs on the new scorecard approach, which will come into effect for meetings on or after February 1, 2015. The scorecard puts aside pass/fail tests and will consider a range of positive and negative factors. It will still result in negative recommendations for plan proposals that have, in ISS’s words, “egregious characteristics (such as authority to re-price stock options without shareholder approval).”
Deborah Lifshey, Managing Director at compensation consultancy Pearl Meyer & Partners, says the fact that this is no longer a pass/fail test based on plan cost is a good thing. “It is great that there are mitigating factors, if your plan has a lot of good governance and your past practices are deemed to be good governance in the eyes of ISS. It’s good to know that the plan could pass even if the plan cost is a bit more than the industry norm,” Lifshey adds.
However, the new, nuanced approach leaves gray areas for boards.
“We were hoping to have more concrete and quantifiable information so we could help our clients figure out the range scores,” Lifshey says. “But what we actually got was this very high-level, elusive document that talks about the three buckets and how things are weighted generally. And we know that we need to get a score of 53 out of a hundred, but we don’t know precise values within each question.”
She says this may force boards to purchase ISS’s model to see how their equity plans will fare.
“I think after a year of doing this we will see enough ISS feedback to better understand how certain questions are valued.”