ISS has distinguished these disqualification bylaws from bylaws in which a director nominee is disqualified for failing to disclose third-party compensation arrangements. In the latter case, ISS is not recommending a vote against directors for approval of such bylaws since they may promote better-informed voting decisions.
ISS’s position is not a blanket disapproval of director compensation/disqualification bylaws. Rather, if a director compensation/disqualification bylaw is put to a shareholder vote, ISS will apply a case-by-case approach, “taking into consideration, among other factors, the board’s rationale for proposing the bylaw, whether the proposed bylaw materially impairs and/or delivers any off-setting improvements in shareholder rights, and any market-specific practices or views on the underlying issue.”
Critics of ISS’s general opposition to director compensation/disqualification bylaws say that the ISS voting policy is misguided and ignores the legitimate corporate interests served by such bylaws, including addressing the conflict of interest underlying special compensation arrangements, particularly those involving “pay-for-performance” metrics, that may be paid by a dissident shareholder for board service.
To view the ISS FAQs, click here.