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ISS Releases 2021 Global Benchmark Policy Survey Results

Institutional Shareholder Services (ISS) has published the summary results of its 2021 Global Benchmark Policy Survey. This annual survey is intended to collect broad feedback from all interested parties on areas of potential policy changes for 2022 and beyond.

Survey responses were collected over the month of August from a global audience. In total there are 409 responses, including 159 investors (mostly asset managers), 246 companies and 4 academics and non-profits. Close to 60% of investors are organizations that cover global markets. The next biggest “primary market of focus” was the U.S. with 25%.

The policy survey covers a variety of compensation and broader governance topics. Specific to compensation items, we note below the relevant findings for Canadian issuers.

Inclusion of ESG performance metrics in executive compensation (global)

Respondents were asked to comment on whether the inclusion of Environmental, Social and/or Governance (ESG) metrics into executive compensation programs is an appropriate way to incentivize executives. Feedback varied between investors and companies.

The majority of investors (52%) and a quarter of companies (27%) agree that ESG metrics are an appropriate way to motivate executives, but the measures should be specific and measurable. However, one third (34%) of investors and near majority of companies (46%) have a contrasting view, suggesting ESG metrics that are non-financial and less measurable can still be effective. The balance of investors and companies (4% and 16% respectively) discourage ESG metrics, in favour of retaining focus on traditional financial metrics.

Respondents that support inclusion of ESG metrics were also asked to comment on which executive incentive plan (short-term or long-term) is most appropriate. Feedback from investors and companies are similar with more than 70% suggesting either of the incentive plans is appropriate, depending on the circumstances. For respondents who chose one incentive plan over another, investors cited LTI is the more appropriate vehicle, while companies have a mixed view with nearly equal responses for STI and LTI.

Long-term perspective on CEO pay quantum (Canada and U.S)

When reviewing an issuer’s pay-for-performance, one of the quantitative tests compares one-year CEO pay relative to the median of peers. The majority of all survey respondents agreed that ISS should include a longer-term view (e.g., 3-years) when assessing CEO pay. Support includes 85% of investors and 67% of companies; one quarter of companies support the status quo, suggesting the most recent year’s CEO pay remains most relevant.

Mid-cycle changes to LTI programs (Canada and U.S.)

In response to the global pandemic in 2020, some organizations made mid-cycle changes to LTI programs for a variety of reasons. Survey respondents were mixed on whether mid-year changes are reasonable. A slight majority of investors (53%) view these types of changes to be problematic, applying a philosophy that LTI designs should not be adjusted for short-term market disruptions. In contrast, 40% of investors and 76% of companies agree that mid-cycle changes may be reasonable and appropriate for organizations that have incurred severe negative economic impact as a result of extraordinary events.

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