New ISS Guidance on Pandemic-Related Pay Decisions May Influence Disclosure and Shareholder Engagement

Published: October 2020


ISS’ preliminary FAQs provide some guidance for companies preparing for the upcoming proxy season as year-end compensation and program decisions are being made.


As we await formal policy updates for the 2021 proxy season, the proxy advisory firm Institutional Shareholder Services (ISS) recently released preliminary FAQs on COVID-19-related pay decisions. The general guidance is informed by recent roundtable discussions between ISS and investors as well as ISS’ recent policy survey.

It is important to note that these FAQs are preliminary and may be further enhanced after the announcement of ISS policy changes for 2021. (Read more about ISS’ proposed policy changes in our alert here.)

Given that the updated FAQs are influenced by current investor views, they are an important resource for companies that are engaging (or planning to engage) with shareholders. This guidance is also useful for informing upcoming executive pay disclosures in the CD&A — particularly for companies who have made or are contemplating pandemic-related adjustments to executive compensation.

Most of the updated FAQs will be used by ISS in its qualitative pay-for-performance evaluation. Many of the FAQs elaborate on the type of disclosure ISS and investors are looking for. Here are the key areas of focus:

Annual Bonus Programs

ISS anticipates a range of potential changes to bonus or annual incentive programs. The core of the guidance in the preliminary FAQs centers on the expectation that companies disclose the rationale for these decisions and that the outcomes appear reasonable. The disclosure topics that may help investors and ISS assess company decisions include:

  • How pandemic-related challenges made the existing program design unworkable. In tandem, the disclosure should address how design changes are not associated with poor management performance.
  • Cases of mid-year changes should address why the approach was taken and how it is in investors’ best interests.
  • One-time discretionary awards should include performance-based considerations. Companies should disclose the criteria while avoiding generic descriptions, such as “strong leadership during challenging times.”
  • How adjusted payouts compare with what would have occurred under the original program design and mirror executive and company performance. As has been the case in the past, above-target payouts will be closely examined.

For companies disclosing the design of their 2021 program, positive changes may be a mitigating factor. Additionally, in cases where a company has lowered performance targets, the disclosure of how the board considered payout opportunities, especially if these are not reduced, will be important.

Long-Term Incentives (LTI)

The preliminary FAQs suggest that ISS and investors anticipate fewer adjustments to LTI plans given the long-term nature of this component of compensation. Investors believe LTI awards should generally not be adjusted mid-cycle. The ISS FAQs touch on both regular and one-time awards:

  • Changes to in-cycle grants will generally be viewed negatively, especially if ISS identifies concerns in their quantitative pay-for-performance evaluation.
  • Absent material changes to a company’s underlying business strategy, the disclosure of program changes to 2020 LTI plans should be clearly explained to allow analysis of the compensation committee’s rationale and actions. Modest changes, such as a modification in metrics, may be viewed more reasonably than dramatic changes, such a significant shift to time-based awards.
  • One-time awards, which are already subject to high scrutiny, will remain an area of focus where disclosure detailing the rationale, magnitude and structure of the award, and how the award furthers investors’ interests is expected. As is currently the case, boilerplate disclosure of “retention concerns” will be insufficient according to ISS. Such awards should be strongly performance-based and feature long-term vesting, guardrails “to avoid windfalls” and limits on termination-related vesting.
  • Companies can expect even greater scrutiny when one-time awards are granted to replace forfeited performance-based awards, either in the same or a following year.


ISS enhanced their FAQs to acknowledge that the pandemic might present unique challenges for some companies to execute changes in response to shareholder concerns. When companies face difficulty implementing changes to pay programs or practices due to the pandemic, they must disclose this and their longer-term intentions to implement such changes to address investor concerns.

Equity Plan Proposals

ISS typically announces changes to their Equity Plan Scorecard (EPSC) via FAQs later in the year and after the 2021 benchmark policies are released. For that reason, it is interesting that ISS has already announced the following changes to the passing scores under the EPSC model:

  • For S&P 500 companies, an increase to 57 points from 55 points currently.
  • For Russell 3000 companies, an increase to 55 points from 53 points currently.

These higher thresholds may create challenges for some companies to obtain favorable ISS vote recommendations for their equity plan proposals.

Next Steps

Overall, the ISS FAQs attempt to provide some guidance for companies to navigate the unique environment businesses and investors face going into the next proxy season. As year-end compensation and plan design decisions are made, and shareholder engagement and CD&A preparations begin, these topics are more than timely.

To learn more, read about our recommended framework for making 2020 pay decisions in this highly unusual year in our article: A Framework for Making Executive Compensation Changes in 2020 and Beyond.

For questions about the policy updates, their potential impact or other corporate governance inquiries, please contact the author or write to


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