With companies increasingly dropping environmental, social and governance (ESG) and diversity, equity & inclusion (DEI) factors from their executive pay plans, there’s sharp disagreement between investors and issuers as to how these kinds of changes should be viewed by proxy advisory firms, according to the latest voting policy survey from ISS Governance.
The firm published the results of its latest annual global benchmark policy survey, which it uses to help craft its voting policies for the upcoming proxy season.
The survey examined a variety of issues from shareholder rights to governance, shareholder proposals and executive compensation.
According to the report, the issue that got the most attention from Canadian respondents was the practice of companies dropping ESG and/or DEI metrics from their incentive pay schemes — a development that’s been driven by the shifting political climate, led by the growing hostility to ESG and DEI in the U.S., and the perceived risk of maintaining these kinds of considerations.
In particular, the survey flagged a number of companies that have dropped these metrics from existing, but unvested award calculations, not just future awards. It noted that “ISS and many investors have historically viewed changes to in-flight awards negatively, unless a company has disclosed a compelling rationale for the action.”
The survey asked for feedback on how respondents say that ISS should treat these kinds of changes in the current climate.
Investors strongly favoured continuing to take a negative view of changes to “in-flight” awards, with 73% of investors taking this stance, compared with just 24% of non-investor respondents. Conversely, 27% of investors and 76% of non-investors said that dropping ESG/DEI factors shouldn’t, on its own, be considered problematic.
In the wake of the survey, ISS will be releasing its proposed voting policies for the coming proxy season in the coming weeks for public comment. It’s expecting to finalize its voting policies by the end of November.
The survey received a total of 248 responses, comprised of 165 from institutional investors and investor-affiliated organizations, and 83 from companies, corporate-aligned organizations and other non-investor respondents.