ISS Survey Seeks Input on ESG Pushback & Adjustments to Incentive Pay

Increased ESG politicization, disclosure of non-GAAP adjustments to incentive pay, global governance practices, and climate are the focus of ISS’s 2023 global benchmark policy survey. Stakeholder input from institutional investors, companies, and other market constitutes gathered in this survey help to shape future policy development and voting policies for the proxy advisor.

This year’s survey is asking questions on some new and interesting topics including, “How tolerant would you be of a company’s reduction in transparency that resulted from risks from increased politicization of ESG?” They are seeking feedback on which risk is greater – those that arise from a lack of transparency or risks associated with political threats.

Another topic of note is whether companies should be required to disclose a line-item reconciliation of non-GAAP adjustments to incentive pay metrics in the proxy statement. ISS cites that “a growing number of investors believe that disclosure of line-item reconciliation is needed to make an informed assessment of executives’ incentive pay.” Board directors have been under scrutiny for these adjustments since the pandemic and for using discretion to offset company performance impacted by events such as the Russia-Ukraine war and litigation costs.

ISS also has their eye on foreign private issuers following governance practices and disclosure rules of their “home market” which are often less stringent than U.S. requirements. Additionally, they seemed concerned with U.S. companies that have added a secondary listing in a non-US market as a “back-up plan” in case they are de-listed from the U.S. market due to the Holding Foreign Companies Accountable Act.

From a global standpoint, there are questions related to resuming the pre-COVID pandemic practice in Japan t of voting against directors of companies that posted average return on equity of less than 5%. There is also a question on whether a sunset provision should be introduced in South Korea for directors involved in legal matters.

ISS will analyze these results and consider other feedback from topic-specific roundtables to help guide their proposed policy changes for 2024. A public comment period will follow their proposed policy updates. We encourage Center members to participate in the survey and share their views with ISS.

The survey will close on September 21.