Incentive Plan Outliers: Winning shareholder approval for Equity Incentive Plans without ISS or Glass Lewis support

Equity plan proposals are the most common proxy proposal that all US companies will have to encounter at some point besides the legally required directors, auditors, and say on pay proposals. An against recommendation from ISS or Glass Lewis on this proposal can be concerning especially at the beginning of the voting process if the proposal has less than 50% support. Despite ISS recommending against approximately 25% of equity plan proposals, and Glass Lewis 15%, only a very small number (less than 2%) of equity plan proposals fail each year.

Very few incentive plans fail each year because many major institutional investors do not follow the ISS or Glass Lewis recommendations on equity plan proposals. Excluding plans with an evergreen or repricing provision – features prohibited by most institutional investor guidelines, BlackRock, Vanguard, State Street Global Advisors, and Invesco Capital Management actually voted in favor of more than 60% of equity plan proposals that ISS and Glass Lewis both recommended against.

Companies outside the ISS and Glass Lewis guidelines can still win shareholder approval for an equity plan provided the request is reasonable and they have analyzed their shareholder base to determine the level of ISS and Glass Lewis influence. A negative ISS and/or Glass Lewis recommendation will lower the overall voting results, but companies should remember approval of a plan requires 50% of the shares cast plus one. The average support for incentive plans dropped to 77% when ISS and Glass Lewis recommended against during the year compared to 93% when ISS and Glass Lewis both recommended in favor.

Several institutional investors will blindly follow the ISS or Glass Lewis equity plan recommendation. However, many institutional investors that default to the ISS or Glass Lewis recommendation may make exceptions to an adverse recommendation if the company engages them with a good reason to support the proposal. Interestingly, some institutional investors have even more restrictive guidelines than ISS or Glass Lewis, for example, American Century supported less than 10% of the equity plan proposals. Foreign investors are another group that often has strict equity plan guidelines, for example, BNP Paribas Asset Management did not vote in favor of any US equity plans in 2022. As long as a company does not have a high concentration of these investors in their top holdings, a replenishment outside of ISS or Glass Lewis guidelines is reasonable and likely to pass a shareholder vote. 

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