Updated institutional investor voting guidelines

Institutional Shareholder Services (ISS) published its proxy voting guidelines for 2020 and Glass Lewis published its 2020 proxy paper guidelines for the UK in November 2019.

ISS Proxy Voting Guidelines

Changes in the 2020 edition of ISS’s proxy voting policies (which apply to shareholder meetings taking place on or after 1 February 2020) include:

• Board gender diversity – ISS will generally recommend voting against the chair of the nomination committee (or other directors on a case-by-case basis) when there are no female directors on the board.
• Remuneration report – The remuneration committee should disclose how it has taken into account any relevant environment, social and governance (ESG) matters when determining remuneration outcomes.

Glass Lewis Proxy Paper Guidelines

The key changes to the Glass Lewis guidelines this year include:

• Board composition – Glass Lewis will consider recommending voting against the chair of the nomination committee of any FTSE 350 company that has not met the Hampton-Alexander Review target of 33% female representation on the board, nor disclosed any cogent plan to address the issue.
• Remuneration and pensions – There are a number of detailed changes, including that pension contributions should reflect those awarded to the wider workforce and that remuneration committees should exercise discretion to reduce bonuses or option awards where a company has suffered an exceptional negative event, even if formulaic targets have been met.

The Guidelines have also been amended to reflect the 2018 edition of the UK Corporate Governance Code, in particular to reflect the removal of certain exemptions for smaller (non-FTSE 350) companies.

Investment Association guidelines

The Investment Association (IA) published a statement and guidelines in September 2019 warning companies that they must set a credible plan to pay all executive directors the same pension contributions as the majority of their workforce by the end of 2022 or risk further shareholder dissent.

The IA also published its annual letter to Remuneration Committee Chairs and its updated Principles of Remuneration in November 2019.

From the start of the 2020 AGM season, for companies with year-ends starting on or after 31 December 2019, the IA’s Institutional Voting Information Service (IVIS) will:

• ‘Red top’ (indicating the strongest level of concern) any company which:
  • appoints a new executive director, or appoints a director to a new role, with a pension contribution out of line with the majority of the workforce;
  • seeks approval for a new remuneration policy which does not explicitly state that any new director will have their pension contribution set in line with the majority of the workforce; or
  • has an existing director with a pension contribution 25% of salary or more, and has not set out a credible plan to reduce that contribution to the level of the majority of the workforce by the end of 2022; and
• ‘Amber top’ any company with an existing director who has a pension contribution 25% of salary or more, but has set out a credible plan to reduce that pension to the level of the majority of the workforce by the end of 2022.