Influential proxy advisory firm ISS today announced a slew of new updates to its Governance QualityScore methodology, which the firm uses to analyze and rank companies’ risk levels when it comes to key governance topics for its institutional investor clients. The changes add 23 new factors, raising the number of total potential governance indicators considered in calculating the scores to 75.
Several of the nearly two dozen new factors are aimed at how board members are overseeing information security risks to companies and if they have the right board structure, diversity and skills in place. In addition, ISS will now assess boards based on the presence of LGBTQ+ directors and whether there are ethnically diverse board members in leadership roles.
The updates also include six new factors related to executive compensation, largely focused on pay-for-performance measures. For example, ISS will assess how much total shareholder return aligns with the change in CEO pay during the past five years as well as the where the CEO’s total compensation in a year shakes out “as a multiple of the median pay of the company’s peers,” according to the firm.
ISS will also judge the quantitative and qualitative concerns related to CEO pay-for-performance. ISS uses four quantitative metrics to assess pay-for-performance calibration, including degree of alignment, multiple of median pay to total shareholder return alignment and financial performance assessment, according to ISS’s U.S. compensation policies. When assessing qualitative concerns, the firm considers factors such as “the ratio of performance- to time-based incentive awards” and “the overall ratio of performance-based compensation to fixed or discretionary pay,” among other factors.Agenda – ISS Unveils More than 20 New Factors in Governance Assessments