ISS completes its annual round of EMEA updates to guidelines

Institutional Shareholder Services (‘ISS’) has now published its 2020 benchmark proxy voting policies which will apply for annual general meetings from February 1st 2020. The guidelines cover EMEA, including the UK and Ireland and we have focused below on the changes relating to remuneration in the UK market.

The guidelines have been released slightly earlier than in recent years, probably so that companies can consider them as part of any 2020 policy renewals.  Many of our clients have been developing their directors’ remuneration policies for shareholder renewal next year knowing these could be affected by the updated ISS guidance. The revised guidelines further develop ISS' position in relation to the 2018 UK Corporate Governance Code, though companies may be relieved to see that the updates to the guidelines make less changes and are less prescriptive than some of the equivalent guidance from other bodies.

It is unsurprising to see an update to the guidance on pension provision but there is no change to last year’s position on post-cessation share ownership guidelines nor to their position on the use of restricted shares.

Consistent with other guidelines, for new appointments to the Board, ISS expects that the pension contribution should be aligned to that of the workforce.

ISS has noted The Investment Association’s (IA) stance on pension, including their expectation for a ‘credible plan’ to pay the same pension contributions as the majority of the workforce by the end of 2022, and the focus on pension contribution rates at or above 25% of base salary.

However, ISS says that existing pension arrangements for incumbent executives will be “assessed on a case-by-case basis, taking into account any explanations provided by the relevant company” and that, while it will not be issuing a vote against recommendation on a remuneration policy in 2020 due to an existing pension arrangement for an incumbent director unless it is ‘exceptionally generous’, it encourages companies to be aware of investor sentiment and set out a clear plan to reduce over time.  ISS (and Glass Lewis) are, therefore, less dogmatic than some, but encouraging of the 'direction of travel'.

ISS has strengthened its expectations surrounding bonus disclosure and has brought it more in line with the IA’s guidance. As the majority of companies do provide immediate disclosure of targets following the year-end without facing any issues around commercial sensitivity, ISS says that any companies that do not will be viewed sceptically.

Under the discretion section of the guidance, ISS has expanded its view on environmental, social and governance (ESG) risks within the remuneration framework. There is now an expectation that ESG risks or controversies should be reflected in the remuneration outcome and, if not, that sufficient explanation is provided.

ISS is seeking to clamp down on situations where a departure is announced but the payment in-lieu-of-notice commences from a later date, thereby effectively extending the notice period and the period any incentive pro-rating is operated over.

ISS has also clarified as part of its guidance that, if a director moves from an executive to a non-executive  role, any time pro-rating should be limited to the end of the holding of the executive position. This is in line with its recent voting advice where we have seen examples of vote against recommendations being issued where pro-rating was extended to the period served as a non-executive.

If you wish to discuss anything arising from this briefing, please ask your usual contact at FIT or call us on 020 7034 1111 or email us at Info@fit-rem.com.

This paper is intended to be a summary of key issues but is not comprehensive and does not constitute advice. No legal responsibility is accepted as a result of reliance on the contents of this paper.

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