At the end of last year, Institutional Shareholder Services (“ISS”) released a handful of updated FAQs on equity compensation plans and compensation policies as well as a slightly updated pay-for-performance mechanics statement; there were no substantive changes to the peer group FAQs.[1] In addition to providing the 2021 Burn Rate Benchmarks for ISS equity plan evaluation (which are effective for shareholder meetings on or after February 1, 2021), the updates address questions regarding the inclusion of a terminated equity plan’s existing share reserves in ISS’ Shareholder Value Transfer (“SVT”) analysis for new equity plan approval proposals, threshold passing scores for the Equity Plan Scorecard (“EPSC”) framework, quantitative pay-for-performance screens and how ISS will evaluate COVID-related pay decisions.

Equity Compensation Plans

  • ISS revised its response slightly regarding when a company intends to terminate an existing equity plan (canceling any remaining shares reserved for awards under the plan) when shareholders approve a proposed new equity plan and what information should be disclosed in order for the remaining shares reserved under the prior plan to be excluded from the SVT analysis. ISS confirmed that, because of the period of time between the end of the prior fiscal year (the date as of which shares under the plan available for future awards is typically disclosed in the 10-K or proxy statement) and the date the plan will be terminated (typically the date of the shareholders’ meeting), ISS will generally include shares remaining under the prior plan in its SVT analysis.  In order for ISS to exclude those shares from its SVT analysis, the company should disclose all of the following in the 10-K or proxy as of the same date: (1) the total number of shares remaining available for future awards, including any impact from fungible counting provisions, that will no longer be available upon approval of the successor plan; (2) the total number of full value awards and all appreciation awards (previously only options and not SARs were specifically required to be disclosed) outstanding, disclosed separately and including the weighted average exercise price and remaining term of appreciation awards (and for performance-contingent awards, the updated number of shares with respect to earned/unearned portions); and (3) a commitment that no further shares will be granted as awards under the existing plan unless the successor plan is not approved by shareholders.
  • ISS revised the passing scores for the S&P 500 and Russell 3000 models. Effective for shareholder meetings as of February 1, 2021, the threshold passing scores for EPSC evaluations will increase for the S&P 500 model from 55 points to 57 points and for the Russell 3000 model from 53 points to 55 points. The threshold passing score of 53 remains unchanged for all other models.

Pay-for-Performance Mechanics

  • ISS lowered the Multiple of Median “high concern” trigger. For shareholder meetings on or after February 1, 2021, the Multiple of Median measure “high concern” threshold for S&P 500 companies (but not others) has been lowered to 3.00 times (from 3.33 times) the peer median. The Multiple of Median measure is a relative measure that expresses the company’s prior year’s CEO pay as a multiple of the median CEO pay of its comparison group for the most recently available annual period. Other than minor changes in the thresholds at which the Pay-TSR Alignment (from -22% to -23%) and Multiple of Median (from 1.64 to 1.67% at S&P 500 companies only) might trigger a financial performance assessment adjustment to a company’s overall quantitative concern levels, the pay-for-performance mechanics otherwise remained unchanged.


  • ISS will continue to consider the extraordinary impact of COVID-19.  On October 15, 2020, ISS issued the U.S. Compensation Policies and the COVID-19 Pandemic FAQs. The FAQs remain unchanged and provide guidance on how ISS intends to approach COVID-related pay decisions in the context of ISS’ pay-for-performance qualitative evaluation, including (1) how ISS will view temporary salary reductions for executives; (2) how ISS will evaluate COVID-related changes to bonus or annual incentive programs and what disclosure may be necessary; (3) how ISS will evaluate COVID-related changes to equity or long-term incentive cycles that were in-progress or were granted in 2020; (4) how ISS will evaluate COVID-related retention or other one-time awards, including in the context of a forfeited incentive; and (5) ISS’ responsiveness, EPSC, Problematic Pay Practices or option repricing policies in light of COVID-19.  In the FAQs, ISS generally acknowledged that COVID-19 has caused an extraordinary economic downturn. As such, certain company actions that ISS and investors would have considered problematic under normal circumstances may be viewed as not so, provided that the rationale is clearly and specifically disclosed and the actions “appear reasonable.”  ISS named certain practices that were, in its view, likely not reasonable, including changes to existing multi-year awards, drastic changes to long-term incentive plans, and one-time awards that appeared to be a replacement for forfeited awards.  Furthermore, ISS suggested that salary reductions would be mitigating only to the extent they reduced total pay and would be viewed more favorably still if there was a commensurate reduction in the target incentive opportunity.  A reduction in target payout opportunity may also be required to justify lower performance expectations in ISS’ analysis of incentive plan goal rigor.

[1] The FAQs are available at,, and, respectively.