Menu

2023 Updated Proxy Voting Guidelines

Both Glass Lewis and ISS have updated their proxy voting guidelines for the 2023 AGM season, with Glass Lewis revisions applicable to meetings from 1 January 2023, and ISS's UK Proxy Voting Guidelines applicable for meetings held on or after 1 February 2023.

Glass Lewis revised 2023 Policy Guidelines will be applicable from 1 January 2023, with key changes including:

  • Climate accountability – if companies fail to make disclosures in line with TCFD Recommendations, or if they have not clearly and explicitly defined board oversight responsibility for climate-related issues, Glass Lewis may recommend voting against the chair of the committee (or board) responsible for oversight of climate-related issues (or the chair of the governance committee if no such committee is responsible);
  • Combined incentive plans – Glass Lewis will generally recommend voting against combined incentive plans (in lieu of more traditional structures which have both short- and long- term plans) unless certain conditions are met;
  • Employee representatives – Glass Lewis does not include directors serving as representatives of employees when calculating what proportion of the board is independent;
  • Overboarding – Glass Lewis has clarified what it considers to be an excessive level of commitments and it will generally recommend voting against the election of an executive director who is taking on more than one non-executive directorship of a FTSE 100 company (or serving on more than one public board or similar level of appointment);
  • Director pension contributions should be in line with the wider workforce by the end of 2022, are seeking better explanation of discretion around incentives; and
  • Glass Lewis is also monitoring how companies approach a number of other issues, including board diversity and cyber risk oversight, with a view to taking action should companies not respond appropriately to these developments.

Key changes to ISS's UK Proxy Voting Guidelines (applicable for meetings held on or after 1 February 2023) can be found here and include:

  • Board diversity – for financial years beginning on or after 1 April 2022, ISS may consider recommending votes against the chair of the nomination committee (or other directors on a case-by-case basis) for companies that have not met the FCA's board diversity and inclusion targets introduced from April 2022 (ie at least 40% of the board are women, with at least one of the senior board positions is a woman and at least one board member is from an ethnic minority background - see April's Policy RoundUp).For AIM-listed companies with a market capitalisation of over £500 million, ISS will generally recommend against the chair of the nomination committee (or other directors on a case-by-case basis) if there is not at least one woman on the board, and (from 2024) if there is not at least one board member from an ethnic minority background. 

  • Climate accountability - for 2023, ISS is extending globally its policy on climate board accountability first announced last year and introduced in selected markets for 2022, and is updating the factors considered under the policy as follows: In cases where a company is not considered to be adequately disclosing climate risk disclosure information (eg in line with TCFD), and does not have either medium-term GHG emission reductions targets or Net Zero-by-2050 GHG reduction targets for at least Scope 1 and Scope 2, ISS will generally recommend voting against what it considers to be the appropriate director(s) and/or other voting items available. Emission reduction targets should also cover the vast majority (95%) of the company’s operational (Scope 1 & 2) emissions. 

  • Audit committees – in light of the audit and corporate governance reforms and increased focus on the work of audit committees, ISS will note where there have been four or fewer meetings of the audit committee of FTSE 350 companies in the financial year. This recognises the importance and complexity of the Audit Committee’s role, and the likely increased focus on Audit Committee oversight of the external auditor.

  • Remuneration report – Base salaries, benefits and pensions - ISS has clarified its policy language to make it clearer that keeping directors' annual salary increases low and ideally lower proportionally than general increases across the broader workforce is considered to be good market practice.

Given the Pre-Emption Group’s recently revised Statement of Principles (see November's Policy RoundUp), ISS has also updated its guidelines and will not recommend votes against resolutions for authorities sought and used in line with the updated principles.

ISS is due to publish the full updated policy guidelines reflecting these changes later this month.

The Investment Association have also set out their remuneration expectations, focusing on salary levels, cost of living and the use of ESG metrics in executive remuneration, and IVIS threatening ‘red-top’ warnings where remuneration or pension contributions are not aligned with the workforce. The IA’s updated Principles of Remuneration call for companies to show restraint on overall executive pay levels and consider the overall quantum in the context of pay levels and conditions across the entire workforce. Given the cost of living crisis, directors’ experience should be commensurate with that of wider stakeholders’ (employees, customers, suppliers and shareholders).

Published 9 December, 2022