Institutional Shareholder Services Inc. (“ISS”), a leading proxy advisory firm, uses a proprietary “Equity Plan Scorecard” approach to evaluate public company equity compensation plans. For 2023, ISS has updated its Equity Plan Scorecard and the corresponding Frequently Asked Questions (“FAQs”). A full link to the ISS guidance can be found here.
Although we are well into the 2023 Proxy Season, for issuers that have yet to file, we thought it would be helpful to summarize ISS’ updated guidance:
- ISS has updated the methodology for calculating burn rate using a “New Value-Adjusted Burn Rate” model. The new model compares the issuers burn rate to a benchmark of peers. This new model may impact how an issuer scores under the Equity Plan Scorecard if the issuer is seeking shareholder approval of a new equity compensation plan.
- ISS has updated the threshold scores for obtaining a passing score in the Equity Plan Scorecard. For 2023, a passing score for: (i) S&P 500 issuers increased from 57 to 59 points; (ii) for Russell 3000 issuers increased from 55 to 57 points; and (iii) for non-Russell 3000 issuers increased from 53 to 55 points.
- In order to receive positive points on the Equity Plan Scorecard for a clawback policy, the applicable policy must apply to both equity awards that vest based solely on the passage of time and performance-based awards. This means that a clawback policy that only satisfies the minimum requirements of the final clawback rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act will not capture positive points for this Equity Plan Scorecard factor.
If you are an issuer seeking shareholder approval of your equity incentive plan and/or asking your shareholders to increase the size of your equity plan’s share pool, please consider reviewing the updates to the Equity Plan Scorecard in connection with the preparation of your new and/or amended equity incentive plan.