Investors are coalescing around reasonable vs. problematic COVID-related pay changes, according to ISS’s
2021 Top Governance & Stewardship Issues. The report also covers racial/ethnic and gender diversity, climate-related shareholder proposals, virtual meetings, and M&A activity. While the main topics have received a significant amount of coverage from other sources, this report provides some insight to ISS-specific data as well as a global perspective, presenting the topics in the context of multiple markets. Highlights for the US include:
Executive Compensation
- Investors have shown openness to mid-year changes to the annual incentive but expect changes to be clearly explained and the resulting awards to be reasonable.
- Mid-cycle changes to long-term incentives and “one-time make whole awards” are viewed more negatively.
- Investors are not providing companies with “credit” for reductions in executive salaries during the pandemic.
- Investors are calling on boards to provide insights about how they considered impacts across their workforce when reconfiguring executive compensation.
Inclusion and Diversity
- Less than 10% of companies in the Russell 3000 and none in the S&P 500 have all-male boards.
- More than 60% of the Russell 3000 have 2 or more women serving on the board.
- Ethnic diversity is more disappointing – 40% of Russell 3000 boards lack apparent racial or ethnic diversity while 80% have no identified racially or ethnically diverse named executive officers.
- Some improvements are apparent – nearly 60% of S&P 500 boards now have 2 or more directors from a racial or ethnic minority population.
Climate Change
- Shareholder proposals requesting boards evaluate climate risk or produce goals to address climate risk are down, but the trend for other climate-related proposals is rising, including:
- Climate transition plans (see BlackRock)
- Political spending
- Board expertise on climate/environmental risk
- A “say-on-climate” vote
- These proposals call on boards to submit climate action plans and progress to shareholders for a vote. Such proposals have some support in the UK, but a more mixed reception in the US.
