Key Reasons for ISS “Against” Say-on-Pay Vote Recommendations

By Bindu M. Culas, Samantha Nussbaum


While an ISS recommendation is not per se determinative of the final Say-on-Pay vote result, a “For” recommendation significantly increases the likelihood of securing a positive outcome, and an “Against” vote recommendation typically requires companies to engage in substantial investor outreach.

During 2017, commonly cited reasons that contributed to adverse Say-on-Pay vote recommendations from ISS included the following:

  • Misalignment of pay and performance (primarily evaluated through ISS’ quantitative scoring tests);
  • Lack of rigor of performance goals (e.g., target goal set below prior year actual performance without corresponding reduction in pay opportunity; above target payout of annual incentive award notwithstanding weak overall company performance);
  • Multiple payouts based on the same performance metrics (e.g., use of same metrics in short-term and long-term incentive programs resulting in “double pay”);
  • Large base salary increases without a compelling rationale, resulting in an escalating effect on other compensation components (e.g., annual incentive opportunity) that are based on a multiple of base salary;
  • Significant grants of non-performance based awards without a clear rationale (e.g., special or retention awards outside of existing incentive programs, including large grants or guaranteed payouts of awards upon resignation or retirement);
  • Providing increased pay for retention purposes shortly before employment termination (also viewed as “pay-for-failure”);
  • Construction of incentive programs (e.g., use of outsized peers and/or above median pay benchmarking; front-loaded equity awards without sufficient rigor or other risk-mitigating features; annual or otherwise short and overlapping performance periods; discretionary payout determinations);
  • Limited compensation disclosure that precludes meaningful assessment by shareholders of pay programs and practices, rigor of performance goals, comparability among peers and/or alignment of pay and performance;
  • Problematic pay practices (e.g., retaining legacy single-trigger payouts or excise tax gross-up provisions in previously “grandfathered” change-in-control program, while entering a separate new employment agreement; multi-year guarantees; excessive severance entitlements); and
  • Compensation committee unresponsiveness (e.g., failure to address problematic pay practices; not disclosing shareholder outreach and feedback following a low Say-on-Pay vote outcome).

Portrait of Bindu M. Culas, PrincipalBindu M. Culas
Managing Director

Bindu Culas has over 15 years of experience advising clients on the US and international legal, tax and regulatory aspects of designing and structuring equity incentive programs, employment agreements, and severance and change-of control plans. Bindu has worked with both domestic and foreign publicly traded and privately held companies as well as pre-IPO companies.

Portrait of Samantha Nussbaum, PrincipalSamantha Nussbaum

Samantha Nussbaum has consulted on behalf of public and private companies, compensation committees, and senior management on all aspects of executive compensation. Samantha’s consulting and legal background includes advising on executive compensation in the context of mergers and acquisitions, spin-offs, and initial public offerings; executive employment, severance, and change in control agreements; equity incentive plans; deferred compensation; and securities laws, including reporting and disclosure implications.