Canada Governance Update: ISS Benchmark Policy Changes for 2024
02 January 2024
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On December 19, 2023, proxy advisory firm Institutional Shareholder Services, Inc. (“ISS”) Governance released its 2024 Benchmark Policy Guidelines for several key markets including the Canadian market. These changes are effective for shareholder meetings taking place on and after February 1, 2024, unless otherwise stated.
In this Morrow Sodali client update, we outline the key changes and clarify amendments affecting Canadian issuers for the upcoming proxy season:
Board Racial and/or Ethnic Diversity:
For companies in the S&P/TSX Composite Index, ISS will generally vote against or withhold from the Chair of the Nominating Committee or Chair of the committee designated with the responsibility of a nominating committee, or the Chair of the board of directors if no nominating committee has been identified or no chair of such committee has been identified, where the board has no apparent racially or ethnically diverse members, and the company has not provided a formal, publicly-disclosed written commitment to add at least one racially or ethnically diverse director at or prior to the next AGM. ISS will evaluate on a case-by-case basis whether against/withhold recommendations are warranted for additional directors at companies that fail to meet the policy over two years or more.
Compensation (TSX Listed Companies) – Individual Grants:
ISS has removed legacy language which no longer reflects market practice. The deletion is regarding a percentage limit (0.25% to 1% of the outstanding common shares) related to non-executive directors (“NED”) option grants. The policy now states that the maximum annual individual NED limit "should not exceed $150,000 across all equity compensation plans in aggregate, of which no more than $100,000 of value may comprise stock options."
Equity-Based Compensation Plans (TSX-Listed Companies) – Non-Employee Director (NED) Participation:
Similar to the policy update above, ISS has also removed the same legacy language regarding a percentage limit (1% of the outstanding common shares) when analyzing an equity compensation plan proposal, as it no longer reflects market practices.
Equity-Based Compensation Plans (Venture Companies):
This policy update applies to Venture Companies listed on either the TSX Venture Exchange or CSE that have adopted an equity plan without seeking shareholder approval. Specifically, ISS will generally vote withhold for the continuing compensation committee members, (or, where no compensation committee has been identified, the board chair or full board), if the public company has adopted a share-based compensation plan without seeking shareholder approval at the AGM following its adoption; or the company maintains an evergreen plan (including those adopted prior to an initial public offering) and has not sought shareholder approval in the past two years and does not seek shareholder approval of the plan at the meeting.
The Morrow Sodali Canadian team will continue to monitor market developments and provide necessary updates in a timely manner.
Contact our experts to find out what influence ISS has on your shareholder base and what these changes mean for your organization.
Issuers and clients who wish to discuss the above-mentioned changes can also contact our expert team directly to explore ways in which we can help you prepare for your next AGM.
In this Morrow Sodali client update, we outline the key changes and clarify amendments affecting Canadian issuers for the upcoming proxy season:
Board Racial and/or Ethnic Diversity:
For companies in the S&P/TSX Composite Index, ISS will generally vote against or withhold from the Chair of the Nominating Committee or Chair of the committee designated with the responsibility of a nominating committee, or the Chair of the board of directors if no nominating committee has been identified or no chair of such committee has been identified, where the board has no apparent racially or ethnically diverse members, and the company has not provided a formal, publicly-disclosed written commitment to add at least one racially or ethnically diverse director at or prior to the next AGM. ISS will evaluate on a case-by-case basis whether against/withhold recommendations are warranted for additional directors at companies that fail to meet the policy over two years or more.
Compensation (TSX Listed Companies) – Individual Grants:
ISS has removed legacy language which no longer reflects market practice. The deletion is regarding a percentage limit (0.25% to 1% of the outstanding common shares) related to non-executive directors (“NED”) option grants. The policy now states that the maximum annual individual NED limit "should not exceed $150,000 across all equity compensation plans in aggregate, of which no more than $100,000 of value may comprise stock options."
Equity-Based Compensation Plans (TSX-Listed Companies) – Non-Employee Director (NED) Participation:
Similar to the policy update above, ISS has also removed the same legacy language regarding a percentage limit (1% of the outstanding common shares) when analyzing an equity compensation plan proposal, as it no longer reflects market practices.
Equity-Based Compensation Plans (Venture Companies):
This policy update applies to Venture Companies listed on either the TSX Venture Exchange or CSE that have adopted an equity plan without seeking shareholder approval. Specifically, ISS will generally vote withhold for the continuing compensation committee members, (or, where no compensation committee has been identified, the board chair or full board), if the public company has adopted a share-based compensation plan without seeking shareholder approval at the AGM following its adoption; or the company maintains an evergreen plan (including those adopted prior to an initial public offering) and has not sought shareholder approval in the past two years and does not seek shareholder approval of the plan at the meeting.
The Morrow Sodali Canadian team will continue to monitor market developments and provide necessary updates in a timely manner.
Contact our experts to find out what influence ISS has on your shareholder base and what these changes mean for your organization.
Issuers and clients who wish to discuss the above-mentioned changes can also contact our expert team directly to explore ways in which we can help you prepare for your next AGM.
Summary
Uncover new ISS policy changes.
