ISS and Glass Lewis Issue Updates to 2021 Policy Guidelines

By Hannah Reich, David Yang, Lanaye Dworak


ISS and Glass Lewis recently issued policy updates for the 2021 proxy season.  The updates mostly represent expansions and/or clarifications of current policies.

ISS Policy Updates (Effective February 1, 2021)

No New Compensation Policies or Updates

ISS did not issue any changes to its executive compensation-related policy guidelines for 2021.  However, ISS recently released initial FAQs to provide general guidance on how they intend to qualitatively evaluate pay actions in response to COVID-19, which can be referenced in our blog dated October 20, 2020.

Board Diversity

ISS expanded its policies regarding board composition to cover gender and racial and/or ethnic diversity.  A board gender diversity policy was announced in 2019 with the 2020 proxy season serving as a transitional year. 

For the 2021 proxy season, ISS will include commentary on companies in the Russell 3000 or S&P 1500 where there is an apparent lack of ethnic and/or racial diversity.  Beginning with the 2022 proxy season, ISS will issue “Against” or “Withhold” vote recommendations for the Chair of the Nominating Committee (or other directors as assessed on a case-by-case basis) if there is a lack of ethnic and racial diversity or inadequate disclosure of such.  Exceptions will be made if there was ethnic and racial diversity at the prior annual meeting and the board expresses a commitment to appoint at least one ethnically or racially diverse member within the next year.  ISS has not yet formally defined its standards for determining whether a board is considered ethnically or racially diverse.

Glass Lewis Policy Updates (Effective January 1, 2021)

Executive Compensation

Clarified that companies should provide clear and robust disclosure of any changes to short- and long-term incentive plan structure, including the exercise of upward discretion, mid-year adjustments to performance goals, target and maximum performance goals set below prior year actual performance, and adjustments from GAAP.  Though not explicitly stated, the policy clarification suggests that Glass Lewis will assess discretionary pay decisions in response to the impact of the pandemic differently than prior years when such decisions would be scrutinized and generally viewed negatively.  However, a favorable assessment will require complete and transparent disclosure and an acceptable supporting rationale.

In addition, Glass Lewis clarified that it may issue an “Against” vote recommendation on a say-on-pay proposal if the company’s performance-based portion of its long-term incentive mix is significantly reduced or eliminated from the long-term incentive mix outside of exceptional circumstances.

Board Diversity

Glass Lewis enhanced its policy on board diversity, which currently requires at least one female board member to avoid an “Against” vote recommendation for the Chair of the Nominating Committee (or other committee members if the Chair is not up for re-election).  For the 2021 proxy season, Glass Lewis will include commentary on companies without a minimum of two females on the board.1  Beginning with the 2022 proxy season, Glass Lewis will issue a negative vote recommendation if the board composition does not comply with their enhanced policy guideline.

Additionally, for the 2021 proxy season, Glass Lewis will begin assessing proxy statement disclosure for companies in the S&P 500 regarding the board’s (i) racial and ethnic diversity ratio, (ii) definition of diversity, (iii) policy on including women and minorities when selecting new directors, and (iv) required skills.  This assessment will not be the basis for a negative vote recommendation on any specific proposal, but may be considered when other board-related concerns have been identified.

Board Refreshment

Beginning with the 2021 proxy season, Glass Lewis will highlight insufficient board refreshment rates at companies where the average tenure of directors is more than 10 years and new directors have not been elected to the board in over five years.  This area of concern will not be the basis for a negative vote recommendation on any specific proposal, but will be considered when other board-related concerns have been identified.

Other Policy Guideline Clarifications

Glass Lewis fine-tuned and clarified other existing policies of interest to Compensation Committee members and compensation professionals:

  • Excise tax gross-ups and golden parachute payments – Clarified that the addition of new excise tax gross-ups in connection with a specific change-in-control transaction may result in a negative vote recommendation beyond the golden parachute proposal and into the say-on-pay and Compensation Committee member re-election proposals.
  • Option exchanges and repricing – Clarified that a “For” vote recommendation on stock option repricing proposals will require that officers and board members be excluded from the program, and the exchange be value-neutral or value-creative to shareholders.
  • Peer group methodology – Clarified that the method for determining peer groups used in the proprietary pay-for-performance letter grading model considers country-based, sector-based, and self-selected peers on a weighted basis in addition to size-based screens.

Click here to access the complete policy updates and guidelines for 2021 from the ISS website.  Glass Lewis’s 2021 policy guidelines can be found here.

1 Will only apply to boards with more than six members.

Portrait of Samantha Nussbaum, PrincipalHannah Reich

Hannah Reich engages with both public and private clients across a variety of industries. Her consulting engagements focus on all elements of executive and board compensation. Hannah specializes in executive compensation trends, director compensation, peer group development and annual and long-term incentive program design.

David Yang
Managing Director

David Yang has advised numerous public and privately-held companies on all aspects of executive and board compensation. His experience covers a wide range of industries, including healthcare, financial services, retail, consumer products, transportation, and technology among others. He is a frequent speaker on executive compensation topics and a regular author of the firm’s alert letters.