On October 15, 2020, Institutional Shareholder Services (ISS) issued preliminary FAQs addressing how it expects to approach COVID-19 related pay decisions in the context of its pay-for-performance qualitative evaluation. ISS released the preliminary FAQs ahead of the regular annual FAQ update, which ISS expects to publish in December, to give investors, companies, and their advisors more time to review the COVID-19 related guidance. In the 11 FAQs included in the guidance, ISS specifies:

ISS notes in the preliminary FAQs that base salaries are typically only a small portion of total pay for top executives. As a result, ISS will give temporary salary reductions mitigating weight only to the extent they decrease total pay. A salary reduction will be considered more meaningful if the target incentive payout is decreased to reflect the reduced salary.

With respect to annual incentive compensation or bonuses, ISS:

ISS indicates that investors need additional disclosure to evaluate changes made to annual incentive programs, and the FAQs include a non-exhaustive list of key disclosure items that companies making COVID-19 related adjustments to annual incentive programs should include.

For more information on adjustments to annual incentive compensation, see Standard Document, Annual Cash Bonus Plan (Not Designed to Comply with Section 162(m)'s Performance-Based Compensation Exception): Section 5.3.

In the FAQs, ISS notes that changes to long-term incentives for cycles that were already in process before the pandemic will be viewed negatively. ISS explains that the nature of these cycles is meant to smooth performance over a long-term period and so should not be altered as a result of a short-term economic shock.

For long-term incentives granted in 2020 after the start of the pandemic, companies generally should not make changes to their programs other than minor changes like a movement to relative metrics that may be viewed as reasonable in the event of uncertain long-term financial forecasting.

For more information on how ISS evaluates equity compensation programs, see Practice Note, Drafting an Equity Incentive Plan for a Public Company: Considerations of ISS and Other Shareholder Advisory Groups.

If a company grants retention or other one-time awards to address retention or other concerns resulting from the pandemic, ISS will analyze them in the same way it analyzes similar awards granted outside the pandemic. Specifically, ISS expects companies granting one-time awards to:

ISS notes that companies should not grant one-time awards as a replacement for forfeited performance-based awards. ISS expects companies granting one-time awards in the year performance-based awards were forfeited or the following year to explain:

ISS's responsiveness policy evaluates a company's responsiveness after receiving less than 70 percent support on its say-on-pay proposal. In evaluating responsiveness, ISS typically reviews several factors, including what actions or changes the company made to pay practices and programs to address investor concerns. If a company is unable to implement changes this year or if those changes are delayed due to the pandemic, ISS states that the company should disclose:

ISS indicates in the preliminary FAQs that there are no COVID-19 related changes to its:

However, for the 2021 policy year, ISS states that the passing score for the S&P 500 EPSC model will increase to 57 points and the passing score for the Russell 3000 EPSC model will increase to 55 points.