In Depth
Institutional Shareholder Services (ISS) is the world's largest proxy advisory firm, serving more than 1,700 institutional investor clients with research and voting recommendations on proxy proposals at public companies globally. ISS evaluates executive compensation using quantitative screens and qualitative analysis, issuing recommendations on say-on-pay votes, equity plan proposals, and golden parachute advisory votes. The firm's flagship pay-for-performance evaluation compares a company's CEO pay rank within its peer group against its TSR rank, flagging companies where pay significantly outpaces performance as potential concerns. ISS also identifies specific problematic pay practices, such as excessive severance, single-trigger equity vesting on change of control, tax gross-ups, and re-pricing of underwater stock options, that can trigger a negative voting recommendation regardless of the quantitative pay-for-performance alignment. Given that ISS clients collectively manage tens of trillions of dollars in assets, a negative ISS recommendation on say-on-pay can reduce approval rates by 20-30 percentage points. Many companies proactively engage with ISS analysts before filing their proxy statements to understand potential concerns and modify pay programs accordingly. ISS updates its voting policies annually through a public comment process, and the policies are publicly available. The influence of ISS in the executive compensation ecosystem cannot be overstated, it effectively sets the governance standards that most large public companies design their pay programs to satisfy. The SEC has issued guidance clarifying that investment advisors using ISS recommendations must still exercise independent judgment and cannot blindly follow proxy advisor recommendations.