ISS Benchmark Policy Changes For 2025: US Edition

On December 17, 2024, proxy advisor Institutional Shareholder Services, Inc. (“ISS”) released its 2025 Benchmark Policy Updates for the United States. These policy changes will be effective for Meetings on or after February 1, 2025. You can view the complete document from ISS here. 

The main policy updates concern three topics:  ISS is codifying several evaluation factors into their Poison Pill policy, ISS updated its policy regarding SPAC extensions and ISS updated its policy around shareholder proposals relating to natural capital. In addition, ISS made adaptations to existing policies around executive compensation. We look into the changes in more detail below. 

1. Poison Pills: ISS noted in its release that most new poison pills adopted are short-term (one year or less) and generally do not get submitted to shareholders. This policy update increases the transparency of the factors considered in the case-by-case evaluation of board-adopted short term poison pills. ISS states that the additional factors provided in this policy update were already being considered by analysts under the category of “other factors as relevant,’ and wanted to take this opportunity to spell out some of these factors in more detail.  The policy will be viewed case-by-case using the updated factors below to determine if a withhold/against vote should be recommended against members of the company’s board. 

• The trigger threshold and other terms of the pill; 
• The disclosed rationale for the adoption
• The context in which the pill was adopted (e.g., factors such as the company's size and stage of development, sudden changes in its market capitalization, and extraordinary industry-wide or macroeconomic events)
• A commitment to put any renewal to a shareholder vote
• The company's overall track record on corporate governance and responsiveness to shareholders
• Other factors as relevant 

2. SPAC Extension Meetings: ISS has now codified its current policy application to recommend support for SPAC extension requests up to one year from the original termination date (inclusive of any built-in extension options and accounting for prior extension requests).  ISS noted that many “zombie SPACs” have been created in recent years due to SPACs having not found an acquisition partner yet, and they have experienced significant redemptions, leaving minimal funds in the trust.  Many of these zombie SPACs have requested multiple extensions for multiple years. ISS noted that they might look favorably at multiple extensions if they do not exceed the one-year threshold from the original termination date.  

3. Natural Capital: ISS has updated its policy related to Natural Capital/Community Impact assessment shareholder proposals to include (as relevant) the alignment of the company’s current disclosure (policies, metrics, risk assessment reports) and risk management procedures with the broadly accepted reporting frameworks.  The current reporting frameworks noted in the policy update are the Taskforce on Nature-related Financial Disclosures (TNFD) and Kunming-Montreal Global Biodiversity Framework (GBF).

4. Executive Compensation: ISS noted that for executive compensation, they are not making a policy change for 2025 but rather adapting to existing policy. ISS introduced these adaptations related to the qualitative performance vesting equity awards review.  ISS noted that investors have expressed concerns about the potential pitfalls of performance equity programs.  Due to this elevated concern, the qualitative considerations related to performance equity programs will now be subject to greater scrutiny in the context of a quantitative pay-for-performance misalignment.  They noted the following (non-exhaustive) list of considerations taken into account as part of the new adaptation to the policy:  

• Non-disclosure of forward-looking goals (note: retrospective disclosure of goals at the end of the performance period will carry less mitigating weight than it has in prior years)
• Poor disclosure of closing-cycle vesting results
• Poor disclosure of the rationale for metric changes, metric adjustments or program design
• Huge pay opportunities, including maximum vesting opportunities
• Non-rigorous goals that do not appear to incentivize outperformance strongly
• Overly complex performance equity structures