2017-2018 iss policy application survey

2017-2018ISSPolicyApplicationSurvey

SummaryofResults

Published:October19,2017

2017-2018PolicyApplicationSurveySummaryofResults

©2017ISS|InstitutionalShareholderServices 2of23

TableofContents

Overview............................................................................................................................................3SurveyResults....................................................................................................................................41. Board.........................................................................................................................................4

BoardElections(Europe).................................................................................................................................4Overboarding(AllMarketswithBundledDirectorElections).........................................................................5Overboarding(Asia).........................................................................................................................................5CombinedChair/CEO(Europe)........................................................................................................................6ChineseCommunistPartyCommittee(China,HongKong).............................................................................7BoardIndependence(Japan)...........................................................................................................................8

2. Compensation............................................................................................................................8Outcomes-basedCompensationMeasure(U.S.,Canada)...............................................................................8Non-employeeDirectorPay(U.S.)...................................................................................................................9ExecutivePensionSchemes(Europe)............................................................................................................11ExecutiveRemunerationPlans(UK,Ireland).................................................................................................11CompensationPlans(Europe,HongKong,Singapore,India,Malaysia)........................................................12CompensationPlans(HongKong,China)......................................................................................................13EmployeeStockOptionPlans(S.Korea).......................................................................................................14

3. EnvironmentalandSocial.........................................................................................................15GenderPayGap(U.S.)...................................................................................................................................15

4. Capital-Related/Other.............................................................................................................16RightsOffering(China)..................................................................................................................................17ConvertibleBondIssuance(China)................................................................................................................18ShareRepurchases(Singapore).....................................................................................................................19LoanGuarantees(Taiwan).............................................................................................................................20Acquisition/DisposalofAssets(Taiwan)........................................................................................................21

5. TakeoverDefenses...................................................................................................................22PoisonPills(U.S.)...........................................................................................................................................22



OverviewAsofthecloseofISS’2017PolicyApplicationSurveyonOctober6,2017,responseswerereceivedfrom74institutionalinvestors,including57assetmanagersand17assetowners.Anadditionalthreeresponseswerereceivedfromorganizationsthatrepresentorprovideservicestoinstitutionalinvestors;theseresultswereaggregatedwiththeinvestorresponses,bringingthetotalinvestorresponsesto77.

Responseswerealsoreceivedfrom203corporateissuers.Additionalnon-investorsurveyresponseswerereceivedfrom31consultants/advisorstocompaniesand17corporatedirectors.Responsesfromthesecorporateconstituentswereaggregatedwiththeissuerresponses,bringingthetotal"non-investor"responsesto251.

Morethan200responsesinallwerefromorganizationsbasedintheUnitedStates,with30fromgroupsbasedinCanada,and55fromgroupsbasedinEuropeand/ortheU.K.Responseswerealsoreceivedfromorganizationsin,butnotlimitedto,Australia,HongKong,Singapore,Japan,Brazil,andBermuda.Manyrespondentshaveafocusthatgoesbeyondtheirownhomecountry.

PrimaryMarketofFocus Investor Non-InvestorGlobal(mostorallofthebelow) 48% 16%U.S. 25% 63%ContinentalEurope 9% 6%U.K. 5% 3%Canada 5% 8%Asia-Pacific 5% 2%Other(includesScandinaviaandSwitzerland) 1% 2%Developing/emergingmarketsgenerally 1% 0%

Thebreakdownofinvestorsbythesizeoftheirassetsownedorassetsundermanagementwasasfollows:

AssetSize %ofInvestorRespondentsUnder$100million 1%$100million-$500million 5%$500million-$1billion 4%$1billion-$10billion 17%$10billion-$100billion 32%Over$100billion 36%Notapplicable 4%

Someoftherespondentsansweredeverysurveyquestion;othersskippedoneormorequestions.Throughoutthisreport,responseratesarecalculatedaspercentagesofthevalidresponsesreceivedoneachparticularquestionfrominvestorsandfromnon-investorrespondents,excludingblankresponses.Surveyparticipantswhofilledoutthe"RespondentInformation"butdidnotansweranyofthepolicyquestionswereexcludedfromtheanalysisandarenotpartofthebreakdownofrespondentsabove.



SurveyResultsSurveyresultsarebasedon77investorresponses(primarilyassetmanagersandassetowners)and251responsesfromnon-investors(primarilycompaniesandtheiradvisers),reflectingmorethanoneresponsefromsomeorganizations.

Forquestionsthatallowedmultipleanswers,rankingsarebasedonthenumberofresponsesforeachanswerchoice.Percentagesforotherquestionsmaynotequal100percentduetorounding.

1. Board

BoardElections(Europe)

UnderthecurrentISSEuropeanBenchmarkVotingPolicyconcerningboardelections,theapplicationofcertainguidelinesdependsonthesizeofthecompany.Forexample,thevotingpoliciesonboardindependence,independenceofkeycommittees,combinedchair/CEOs,andoverboardeddirectorsmayresultinvotingsanctionsforboardelectionsat"widelyheldcompanies."Widelyheldcompaniesaredefinedbasedontheirmembershipinamajorindexand/oronthebasisofthenumberofISSclientsholdingtheirsecurities.

ISSisconsideringpotentialchangestotheEuropeanVotingGuidelinesthatwouldextendthepossibilityofvotingsanctionsunderthesepoliciestosmaller"non-widelyheldcompanies."

Pleaseindicateifyourorganizationbelievesthatthefollowingmattersshouldbeconsideredwhenevaluatingboardelectionsatsmall"non-widelyheldcompanies."

Boardindependence Investor Non-InvestorYes,itshouldbeconsidered 71% 50%Yes,butlargeandsmallcompaniesshouldbetreateddifferently 28% 42%No,itshouldnotbeconsidered 1% 7%

Independenceofkeyboardcommittees Investor Non-InvestorYes,itshouldbeconsidered 71% 57%Yes,butlargeandsmallcompaniesshouldbetreateddifferently 28% 38%No,itshouldnotbeconsidered 1% 6%

CombinedchairmanandCEOpositions Investor Non-InvestorYes,itshouldbeconsidered 69% 27%Yes,butlargeandsmallcompaniesshouldbetreateddifferently 19% 37%No,itshouldnotbeconsidered 12% 36%



ElectionofformerCEOasboardchairman Investor Non-InvestorYes,itshouldbeconsidered 62% 28%Yes,butlargeandsmallcompaniesshouldbetreateddifferently 28% 32%No,itshouldnotbeconsidered 10% 40%

Overboardeddirectors Investor Non-InvestorYes,itshouldbeconsidered 76% 45%Yes,butlargeandsmallcompaniesshouldbetreateddifferently 18% 36%No,itshouldnotbeconsidered 6% 19%

Overboarding(AllMarketswithBundledDirectorElections)

BundleddirectorelectionsremaincommoninsomemarketsinEuropeandLatinAmerica.ThevastmajorityofSwedishandFinnishcompanies,forexample,bundledirectorelections.ApplyingthecurrentISSEuropeanBenchmarkVotingPolicyonover-boarding(serviceonanexcessivenumberofboardsbyoneormoredirectors)toNordiccompanieswouldleadtoavoteagainsttheentireslateofproposeddirectors.Asaresult,ISSdoesnotcurrentlyapplytheEuropeanoverboardingpolicyinNordicmarkets.

Doesyourorganizationbelievethattherelevantregionalover-boardingpolicyshouldbeappliedtodirectorelectionsatcompaniesthatbundledirectorelections?

Investor Non-InvestorYes 57% 36%No 28% 57%Itdepends 15% 7%

Overboarding(Asia)

ISS'BenchmarkVotingPolicyapplicabletocompaniesincorporatedinAsianmarkets(otherthanJapan)currentlydoesnottakeintoconsiderationthedirectorshipsheldbyaCEOatboardsofpublicaffiliatesandsubsidiarycompanieswhendeterminingwhetherheorsheisoverboarded.Insomeothermarkets,theseboardpositionsarecounted.



ShouldtheboardpositionsheldbyaCEOatboardsofaffiliatesandsubsidiarycompaniesbecountedtowardsISS’overboardinglimit?

Investor Non-InvestorYes(bothmajority-ownedsubsidiariesandequity-methodaffiliatesshouldbeincluded) 27% 12%No(neithersubsidiaryboardsnorboardsofaffiliatesshouldbeincluded) 24% 65%Boardsofmajority-ownedsubsidiariesshouldbeexcluded 38% 20%Itdepends 11% 3%

CombinedChair/CEO(Europe)

ISS'currentBenchmarkVotingPolicyistogenerallyvoteagainst(re)electionofcombinedchair/CEOsat"widelyheld"Europeancompanies.Whentheboardprovidesassurancethatthechair/CEOwouldonlyserveinthecombinedroleonaninterimbasis(nomorethantwoyears)andthattheroleswillbeseparatedwithinagiventimeframe,ISSgenerallyconsiderstheseexceptionalcircumstancesaspartofacase-by-caseanalysis.ISSisconsideringwhetherthereareotherrelevantfactorsthatshouldbeconsideredaspartofacase-by-caseanalysisindeterminingavoterecommendationonacombinedchair/CEO.



WhatfactorswouldyourorganizationassignthemostweightinconsideringvotingFORacombinedchairman/CEOwhoisstandingfor(re)electiononanon-interimbasisataContinentalEuropeancompany?(Chooseuptothreefactors)

Investors'Top3Rank*

Non-Investors'Top3Rank*

Compellingrationaleprovidedbythecompanyfortheimplementation/continuationofsuchacombination 1(38) 1(81)Boardindependencelevel(inlinewithISScriteria) 2(35) 3(64)Committeeindependencelevels(inlinewithISScriteria) (20) (47)Comprehensivedisclosureontheexperience,competenceandskillsbroughttothecompanybyeachboardmember (12) (36)Mandatorycomprehensivereportingontheboard’sactivityduringthepastFY (9) (7)Presenceofleadindependent(accordingtoISSindependencecriteria)directorposition(“LID”) 3(34) 2(67)FulldescriptionoftheLID’sdutiesandresponsibilities (15) (21)MandatoryannualreportingoftheLID’sactivities (7) (5)Existenceanddisclosureoftheinternalprocesssetuptomanageriskofconflictsofinterest (15) (25)Noneoftheabove(acombinedchair/CEOisneveracceptable) (10) (12)Other (6) (6)*Rankingsarebasedonnumberofresponsesforeachanswerchoice.

ChineseCommunistPartyCommittee(China,HongKong)

TheChineseCommunistPartyandChineseCompanyLawhavelongimposedarequirementforstate-ownedenterprises(SOEs)toestablishaPartyCommitteetofacilitatePartyactivitiesandtheimplementationofgovernmentpolicies.Bylaw,allChineseSOEsshallhaveaPartysecretaryasthechairmanoftheboard.

Nonetheless,noregulationsexplicitlygrantthePartyCommitteestheauthoritytooverrideacorporateboardthatislegitimatelysetupbyshareholders,andtheboardhasfulldiscretionoverhowtheArticlesofIncorporation(AOI)arechangedtoreflecttherequirementsstipulatedbythePartyDirective.

GiventhatmostcompaniesneitherdelineatetheresponsibilitiesofthePartyCommitteefromthoseoftheboardofdirectorsoritskeycommittees,norspecifyclearlytheactualinteractionbetweenthetwowhenmakingmaterialdecisions,ISSisconsideringtakingamorestringentapproachtogenerallyrecommendavoteAGAINSTarticleamendmentsregardingPartyCommittees,unlessthecompanyhasclearlydefinedthe



respectiveresponsibilitiesofthePartyCommitteeandtheboard,suchthattherearereasonablesafeguardsthattheboardwillmakedecisionsobjectivelyandindependently.

ThePartyDirectivedoesnotstipulateatimeframebywhichSOEsmustamendtheirAOIsanditdoesnotspecifyanypenaltiesforfailingtodoso.Nonetheless,shouldthisresolutionfailtoreceiveshareholderapproval,thecompanymayrevisetheproposalandresubmititforshareholdervote.

Whichapproachbestreflectstheviewsofyourorganization?

Investor Non-InvestorVoteAGAINSTallproposalsregardingestablishmentofaPartyCommittee 39% 54%VoteFORallproposalsregardingestablishmentofaPartyCommitteeasatechnicalchangetothearticles. 7% 6%VoteAGAINSTproposalsthatonlyspecifyestablishmentofaPartyCommitteewithoutdetailinganythingregardingthedecision-makingmechanismortherespectiveresponsibilitiesofthepartyorganizationandtheboard,consideringthepotentialrisksandconcerns 54% 40%

BoardIndependence(Japan)

TheJapaneseCorporateGovernanceCoderecommendsthatatleastone-thirdoftheboardshouldbecomprisedofindependentdirectors.ISSisconsideringupdatingitsBenchmarkVotingPolicyondirectorindependencetorequireatleastone-thirdoftheboardtobeindependentoutsidersatcompanieswithathree-committeestructureoranauditcommitteestructure.Doesyourorganizationagreewiththisapproach?

Investor Non-InvestorYes 93% 88%No 7% 12%

2. CompensationOutcomes-basedCompensationMeasure(U.S.,Canada)

Asperformance-basedcompensationhasbecomemoreprevalentamongexecutivepayprograms,figurespresentedinthesummarycompensationtablehavebecomelessreflectiveofcompensationactuallyrealizedbyexecutives.Inmanypayprograms,thereissignificantleveragetocompanyperformance,allowingexecutivestoearnupto200percentormoreoftheirtargetawardswhenperformanceisstrong.Andwhencompanyperformanceisweak,programsmayforceexecutivestoforfeitasignificantportion(orall)oftheirperformanceawards.



Manycompanieshaveaddedsupplemental"realizedpay"or"realizablepay"disclosurestotheirCompensationDiscussion&Analysisasameansofdemonstratingtheprogram'scommitmenttopay-for-performance.Forthepastseveralyears,ISShascalculatedandpresentedastandardizedmeasureof"realizablepay"forCEOsofS&P1500companies.ISSusesthismeasureinitsqualitativeanalysisoftheexecutivecompensationprogramtoassesstheprogram'srigorandresponsivenesstodemonstratedcompanyperformance.Forshort-termprograms,themeasureconsidersthedifferencebetweentargetbonus/non-equityincentiveandwhatisactuallypaid.Forlong-termprograms,themeasuretakesintoaccountactualpayouts,forfeitures,andtheimpactsofstockpriceappreciationordepreciation.

ISSisconsideringpotentialchangestothequantitativepay-for-performancemethodologyintheU.S.andCanadatotakeintoaccountoutcomesofperformance-basedpayprogramsusingtherealizablepaymeasure.

Doesyourorganizationsupporttheuseofanoutcomes-basedmeasure,suchasrealizablepay,aspartofISS’quantitativepay-for-performanceevaluation?


Ifyouanswered"Yes"totheprecedingquestion,howshouldISSuserealizablepayaspartofthequantitativepay-for-performanceevaluation?(Checkallthatapply)

Investors'Rank*Non-Investors'

Rank*Realizablepaycouldmitigateconcernsregardingpay-TSRmisalignment 1(35) 1(95)Realizablepaycouldmitigateconcernsregardingexcessivepayquantum 2(34) 2(85)Realizablepaycouldexacerbateconcernsregardingexcessiveleveragetoperformance(e.g.,largepayoutsformodestperformance) 2(34) 3(36)Other 3(7) 4(7)*Rankingsarebasedonnumberofresponsesforeachanswerchoice.

Non-employeeDirectorPay(U.S.)

Non-employeedirector(NED)paylevelshavegrownsteadilyinrecentyearswithmedianS&P500NEDpaygrowingfrom$228,000in2012to$260,000in2016,accordingtoISSdata.In2017,thehighestpaidNEDsreceivedmorethan$2millioninannualcompensation.RecentshareholderlawsuitsallegingexcessiveNEDpaylevelshavethrusttheissueintothecorporategovernancespotlightandpayoutliersarebeingmetwithincreasedscrutiny.UnderISS'U.S.BenchmarkVotingPolicy,apatternofexcessivecompensationmayalsocallintoquestiondirectorindependence.



ToidentifyNEDpayoutliers,ISSreviewsdirectorpaylevelsrelativetoothercompanieswithinthesameindexand4-digitGICSindustrygroup(typicallyexcludingnewdirectorsordirectorswhoreceivedrecent,well-explainedspecialgrants).Onceanoutlierhasbeenidentified,ISSalsoreviewsthestructureofdirectorcompensationtoidentifyproblematicdirectorpaypracticesatthecompany(e.g.,performanceequityawards,excessiveperquisites,orretirementprograms).

WhatfactorsshouldbeconsideredindeterminingwhetheranNEDpayprogrampresentsagovernanceconcernwithrespecttohighpaymagnitude?(Checkallthatapply)

Investors'Rank* Non-Investors'Rank*NEDpayrelativetoallcompanies 3(23) 4(37)NEDpayrelativetorelevantstockmarketindexpeers 2(41) 1(111)NEDpayrelativeto4-digitGICSindustrygrouppeers 1(45) 2(96)Other 4(8) 3(49)*Rankingsarebasedonnumberofresponsesforeachanswerchoice.

WhatfactorsshouldbeconsideredindeterminingwhetheranNEDpayprogrampresentsagovernanceconcernwithrespecttoproblematicpaystructure?(Checkallthatapply)

Investors'Rank* Non-Investors'Rank*Stockoptiongrants 3(45) 5(79)Performanceequityawards 2(46) 3(91)

Excessiveperquisites 1(50) 1(150)Non-retirementbenefitsprograms 5(37) 4(85)

Retirementprograms 3(45) 2(108)

Other 6(6) 6(27)*Rankingsarebasedonnumberofresponsesforeachanswerchoice.

Currently,ISSprovidescautionarylanguageinproxyanalysesafteridentifyingapattern(i.e.multipleyears)ofhigh(outlier)NEDpaylevelsatacompany.Whatactionswouldbeappropriateinsuchinstances?(Checkallthatapply)

Investors'

Rank*Non-Investors'

Rank*ISSshouldidentifytheissueinproxyanalysesinyearone,butgenerallytheissuewouldnotwarrantanimmediateadversevoterecommendation 1(30) 1(100)ISSshouldissueadversevoterecommendationsformembersofthecommitteethatapprovesnon-employeedirectorpayinyearone 3(21) 5(10)Committeemembersshouldonlybeheldaccountablefortwoormoreconsecutiveyearsofhighdirectorpayorother



problematicdirectorpaypractices(i.e.adverserecommendationsinyeartwoandbeyond)

2(25) 2(61)

DonotissueadversevoterecommendationsfordirectorsrelatedtoproblematicNEDpaylevels 5(3) 3(51)Other 4(6) 4(21)*Rankingsarebasedonnumberofresponsesforeachanswerchoice.

ExecutivePensionSchemes(Europe)

AccordingtoISS'EuropeanBenchmarkVotingPolicyregardingexecutivecompensation-relatedproposals:“Arrangementswithacompanyexecutiveregardingpensions[…]mustnotresultinanadverseimpactonshareholders'interestsorbemisalignedwithgoodmarketpractices."

Pleaseindicatewhatyourorganizationconsidersas"excessive"contributiontoexecutivepensionschemes(i.e.,anyotherplanthanacompanywidepensionscheme):

Investor Non-InvestorAnythingabovebasesalary 53% 65%Apercentageofbasesalary 47% 35%

ExecutiveRemunerationPlans(UK,Ireland)

In2016,theExecutiveRemunerationWorkingGroupestablishedbytheInvestmentAssociationrecommendedthatremunerationcommitteesshouldhavetheflexibilitytochooseapaystructurethatisappropriatefortheindividualcompany'sstrategyandbusinessneeds,includingstructuresthatmayfalloutsideofthestandardsalary/bonus/performance-basedLTIPmodelfollowedbymostUKcompanies.

Currently,LTIPsintheUKaremosttypicallystructuredasperformanceshareplans.Remunerationcommitteesthathavesoughttomovetowardtime-vestingshareplanshavetendedtoarguethatrestrictedshareplansaresimplerandmoretransparentthanperformance-basedLTIPs.Someinvestorshaveraisedconcernsthatmovingtoarestrictedshareplancoulderodethepay-for-performancelink.

FollowingthepublicationoftheWorkingGroup'srecommendations,afewUKlistedcompanieshaveputforwardproposalstoreplacetheirperformance-basedLTIPswithtime-vestingrestrictedshareawards,ortosignificantlyreducethepotentialmaximumtotalvalueofthelong-termincentivesbyintroducingrestrictedsharesintandemwithareducedawardlevelundertheexistingperformance-basedLTIP.

TheWorkingGrouphasexpressedtheviewthatcompaniesmovingfromaperformance-basedLTIPtoarestrictedshareplanshouldreducethegrantvalueofawardsinlightofthegreatercertaintyofoutcome.TheWorkingGroupsuggestsadiscountrateof50percentasastartingpoint.Inpractice,companiesseekingtointroducerestrictedshareshavekepttothe50percentdiscountingguideline.



Thusfar,restrictedshareshaveproventobecontentiousintheUKmarket.Ofthefiveproposalsseenin2017(throughJune30),threewerewithdrawnpriortotheAGMduetoinvestordisquiet.

Doesyourorganizationbelievethattheintroductionoftime-vestingrestrictedsharesforexecutivesatUK-basedcompaniesmaybeanacceptablepracticeincertaincircumstances?


Ifyouanswered"Yes"or"Itdepends"totheprecedingquestion,whatlevelofdiscount(i.e.reductioninthegrantvalueofrestrictedshareawardsincomparisonwithlegacyLTIPawards)wouldyourorganizationconsideracceptable,atminimum,foracompanymovingfromanLTIPtoarestrictedshareplan?

Investor Non-InvestorAtleast25percent 6% 18%Atleast50percent 26% 14%Atleast75percent 6% 3%Shouldbedeterminedcase-by-case 59% 60%Anotherlevel/percentagethangivenabove 3% 6%

CompensationPlans(Europe,HongKong,Singapore,India,Malaysia)

Currently,whileplanlimits,exerciseprices(foroptions),andadministrationaretakenintoaccountwhenevaluatingcompensationplans,ISS'BenchmarkVotingPolicyapplicabletocompaniesincorporatedinHongKong,Singapore,India,Malaysia,andEurope(withtheexceptionofFrance)doesnottakeintoaccounttheannualburnrate,ameasureofthecompany’sannualequitycompensationgrantrateasapercentageofsharesoutstanding.

Shouldanannualburnratebeusedinevaluatingcompensationplans?

Investor Non-InvestorYes;anabsoluteburnrateshouldbeapplied 39% 9%Yes;thecompany’sburnrateshouldbecomparedtothatofpeercompanies 49% 54%No 7% 27%Itdepends 5% 10%



CompensationPlans(HongKong,China)

CurrentISSBenchmarkVotingPolicycallsforarecommendationtovoteAGAINSTanincentiveplanif:

• Thestockoptionschemepermitsoptionstobeissuedwithanexercisepriceatadiscounttothecurrentmarketprice;or

• Therestrictedstockschemeallowsthegrantpriceofrestrictedstocktobelessthan50percentoftheaveragepriceofthecompany'ssharesduringthe20tradingdayspriortothepricingreferencedate.

InJuly2016,theChinaSecuritiesRegulatoryCommission(CSRC)releasedtheAdministrativeMeasuresontheEquity-basedIncentiveSchemesofListedCompanies,providingcompanieswithmoreflexibilitytoformulatetheirequityincentiveschemes.Whileapricingguidelineisprovidedintheregulation,companiesareallowedtodeterminetheirownpricingbasisforexercisingoptionsorgrantingrestrictedstock.Anindependentfinancialadvisorshallbehiredtoprovideafeasibilityandfairnessopinionregardingthatpricingbasis.Inthe12monthssincetheimplementationoftheregulation,underISScoverage,onlyonecompanyoutofthe186companiesthatproposedequityincentiveplansadoptedapricingbasisthatdiffersfromtheregulatoryguidelines.Suchdeviationsareexpectedtoincreaseasissuersgetmorefamiliarwiththeapprovalprocessandmanagementstyleoftheregulator.

Wouldyourorganizationvoteagainstanincentiveplanifacompanyadoptedapricingbasisforexercisingoptionsorgrantingrestrictedstockthatdiffersfromtheregulatoryguideline?


Wouldsupportfromanindependentfinancialadvisorhiredbythecompanybesufficienttojustifyheavilydiscountedpricing?


Withrespecttoperformancehurdles,currentISSpolicyrecommendsavoteAGAINSTanincentiveplanifthecompanyfailstosetchallengingperformancehurdlesforunlockingtherestrictedshares/exercisingtheoptionscomparedwithitshistoricalfinancialperformanceorindustrybenchmarks.Thenewlyreleasedregulationsalsoofferflexibilityforcompaniestouseperformancemetricsthatcatertotheircorebusinessanddevelopmentneeds,asopposedtoadheringtoperformancemetricsspecifiedbytheregulatorinthepast.Inthe12monthssincetheimplementationoftheregulation,inadditiontoROEthatwascommonlyusedinthepast,many



companiesunderISScoverageadoptedotherperformancemetricssuchasnetprofitgrowthandrevenuegrowthofcorebusinesses.Thediversificationofperformancemetricsisexpectedtocontinue.

Ifdiscountedpricingoftheexercise/grantpriceisadopted,shouldamorechallengingperformancehurdleberequired?


CurrentISSpolicyrecommendsavoteAGAINSTanincentiveplanifdirectorseligibletoreceiverestrictedsharesundertheschemeareinvolvedintheadministrationofthescheme.WhenChinesecompaniesproposeequityincentiveplans,itisusuallyspecifiedinthedisclosurethattheboardisthemanagingbodyfortheplan.Thisstructureleadstoconcernsbecausetherecouldbesituationswheredirectorswhoareeligibletoreceivegrantsundertheplanarealsoinvolvedinitsadministration.Regulationsstipulatingthatdirectorswhoreceivegrantsunderanequityincentiveplanmustabstainfromvotingatrelevantboardmeetingsmaymitigatetheseconcernstosomeextent.Theconflictofinterestisnotcompletelyaddressed,however,becausetheobjectivityoftheboardmaystillbecompromisedaslongastheboardmanagestheequityplan.

WouldyourorganizationtakeastrongstanceonthecompositionoftheplanadministrativebodyoftheequityincentiveplansofChinesecompanies(includingA-shareandH-sharecompanies)byrequiringtheadministrativestructuretobefullyindependentasinthecaseofotherstandalonevotingguidelinesfortheAsiaregion,suchasHongKongandSingapore?

Investor Non-Investor Yes 78% 63%No 18% 31%Itdepends 4% 6%

EmployeeStockOptionPlans(S.Korea)

Koreanregulationsgoverningstockoptionsstatethatacompanycangrantstockoptionsforupto15percentofissuedshares,buttheymustseekshareholderapprovaleachtimestockoptionsaregranted.Employeestockoptionplans(ESOPs)aregovernedbyadifferentlaw,whichprovidesthat,aslongasacompanyhasamendeditsarticlestoincludetherelevantlanguage,itmaygrantstockoptionsforupto20percentofissuedcapitaltomembersoftheemployeestockownershipassociationwithshareholderapproval,andupto10percentofissuedsharesattheboard’sdiscretion.AlthoughordinarystockoptionsandESOPsarebothintendedtoaligntheinterestsofexecutivesandemployeeswiththoseofshareholders,andbothposedilutionrisks,shareholderapprovalismandatoryforgrantingordinarystockoptions,butnotnecessarilyforESOPgrants.ProposalstoestablishanESOPwererarepriorto2017,whenmorethan20companiesproposedtoestablishsuchplansthrougharticleamendments.



SuchproposalsareusuallypresentedinaformatthatmakesitunclearwhethertheboardwillseekshareholderapprovalforESOPgrants.Giventhattherelevantlawallowstheboardtoissueupto10percentofissuedshareswithoutshareholderapproval,thismaybreachthemaximumdilutionlimits(5percentforamaturecompanyand10percentforagrowthcompany)inISS'currentBenchmarkVotingPolicyforordinarystockoptions.Therefore,ISSisconsideringarevisiontoitscurrentpolicyonarticleamendmentstoclarifythatestablishmentofanESOPwillonlybesupportediftheamendedarticlesexplicitlystatethatanyfuturegrantswillbeputtoashareholdervote,inlinewiththepracticeforgrantsofordinarystockoptions.

GiventhatcompaniesrarelyputESOPgrantstoavoteandincaseswheretheydo,theamountisgenerallynominal,wouldyourorganizationsupporttheestablishmentofanESOPaspermittedbylocallaw,evenintheabsenceofacommitmenttoputfuturegrantstoavote?


3. EnvironmentalandSocial

GenderPayGap(U.S.)

Overthepasttwoyears,shareholdershavefiledproposalsaskingforareportongenderpayequity.Specifically,theproposalsaskcompaniestoreportonpoliciesandgoalstoreducethegenderpaygap.WhileanumberofcompaniesintheITsector,suchasApple,Intel,Amazon,eBay,Microsoft,Salesforce,andExpedia,haverecentlydisclosedorcommittedtodisclosingtheirgenderpaygapdata,suchtransparencydoesnotappeartobeastandardindustrypracticeinothersectors.

(ThegenderpaygapisdefinedasthedifferencebetweenmaleandfemalemedianearningsexpressedasapercentageofmaleearningsaccordingtotheOrganizationforEconomicCooperationandDevelopment.)

Inyourorganization'sview,shouldcompaniesbedisclosingtheirgenderpaygapinformation?




Ifyouchose‘Itdepends’totheprecedingquestion,whichofthefollowingapply?(Checkallthatapply)

Investors'Rank*Non-Investors'

Rank*Onlyif/whengenderpaygapdisclosureisrequiredbygovernmentregulations 2(11) 1(23)Ifthepracticehasbecomeanindustrynorm,and/orthecompanyislaggingitspeers

1(15)

2(16)Ifthecompanyhasexperiencedsignificantrelatedcontroversies

3(10) 3(14)

Other 4(8) 4(8)

*Rankingsarebasedonnumberofresponsesforeachanswerchoice.

Inyourorganization'sview,istheabsenceofspecificgenderpaygapdisclosuremitigatedbyacompany'srobustdisclosureofthefollowing?

Investor Non-InvestorDiversityandinclusionpoliciesandpractices 0% 3%Compensationphilosophyandfairandequitablecompensationpractices 9% 18%Bothoftheabove 53% 58%Noneoftheabove 33% 16%Other 5% 5%

4. Capital-Related/Other

ShareIssuanceMandates(Europe)ManyinstitutionalinvestorsfollowastricterapproachthanISS’EuropeanBenchmarkVotingPolicyonshareissuancerequests.ISS'policy,whichappliestocompaniesincorporatedinEuropeanmarketsotherthanFrance,currentlyhaslimitsof20percentofsharecapitalforissuanceswithoutpreemptiverightsand100percentforissuanceswithpreemptiverights.

Whatisanacceptablelevelofdilutionforashareissuancemandateforgeneralcorporatepurposes,iftheissuancerequestiswithoutpreemptiverights?

Investor Non-Investor10percent 60% 38%20percent 28% 54%Other 12% 9%



Whatisanacceptablelevelofdilutionforashareissuancemandateforgeneralcorporatepurposes,iftheissuancerequestiswithpreemptiverights?

Investor Non-Investor50percent 50% 45%100percent 30% 35%Other 20% 20%

RightsOffering(China)NewshareissuancesviaprivateplacementshadlongbeenthemostpopularmethodofequityrefinancingbyChineselistedcompanies.Suchactivitywasoftenassociatedwithexcessivefinancing,highrefinancingfrequencyanddiscountedissueprices.

InFeb.2017,theChinaSecuritiesRegulatoryCommission(CSRC)amendedtherulesgoverningsuchrefinancingactivitiesbycompanieslistedinmainlandChina.Theregulationscaptheresultingdilutionfromaprivateshareplacementat20percentofthecompany'stotalsharesoutstandingpriortotheissuance,andrequiresacooling-offperiodofatleast18monthsfromthepreviousshareissuance.

Theamendmentshavehadanimmediateimpact.Whilesomecompaniesrevisedtheirprivateplacementplanstoalignwiththenewregulations,manyissuerschosetoswitchtorightsofferingsand/orconvertiblebondissuancesforcapitalraising.

Bothrightsofferingsandconvertiblebondissuancesareconsideredpublicissuancesbyregulators,andthereforearesubjecttomorestringentconditionsoncompanyprofitability,dividendsandthepurchaseofsharesbythecontrollingshareholder.Despitetheseconditions,the2017Chinaproxyseasonwitnessedsignificantincreasesinthenumberofrightsofferingandconvertiblebondissuanceproposals,asthenewregulationsgreatlylimittheextentandthefrequencyoffinancingviaprivateplacements.

Rightsofferingsaregenerallyconsideredafairerandlessdilutivemeansofequityfinancing.However,intheChineseA-sharemarket,therightsissuedarenon-renounceablerights,whicharenottransferableandcannotbetradedintheopenmarket.



Whichofthefollowingconcernsrelatedtorightsofferingsmightleadyourorganizationtovoteagainstrightsofferingproposals?(Checkallthatapply)

Investors'

Rank*Non-Investors'

Rank*Additionalcashoutlays 3(19) 2(26)Operationalcostsandforeignexchangerisks 4(15) 4(20)Iftherightsarenotexercised,shareholders'existingholdingswillbedilutedandshareholderswouldsufferfromalowerstockpriceex-rights,whiletheywillbeunabletogainfromsellingtherights

1(31)

1(35)Increasedweightingandexposureinthatparticularsecurityintheportfolioiftherightsareexercised

5(10)

5(16)Acontrollingshareholderisrequiredtomakeapubliccommitmenttosubscribetotherightsissued.Giventhehighlevelofretailinvestorparticipationinthemarket,aportionoftherightsissuedareoftenleftunexercised,resultinginincreasedcontrolbythecontrollingshareholder,usuallyatasteepdiscounttomarketprice.

2(22)

3(24)Other 6(8) 6(9)*Rankingsarebasedonnumberofresponsesforeachanswerchoice.

ConvertibleBondIssuance(China)ItisamarketnorminChinaforcompaniestoincludeaclauseforaone-timedownwardadjustmentoftheconversionpriceintheirconvertiblebondissuances.Asimilarmechanismforupwardadjustmentisrarelyseen.Thedownwardadjustmentisoptionalandnotmandatoryifthepre-existingconditionsaremet,andissubjecttospecialresolutionapprovalatashareholdermeeting.

Whilethedownwardadjustmentcouldpotentiallybenefitthecompanybyloweringthegearingratiointheeventofabondconversion,suchadjustmentwouldincreasepotentialdilutiontoshareholdersandessentiallytransfersvaluefromexistingshareholderstobondholders.



Doesyourorganizationbelievethatthefollowingrationalesjustifyadownwardadjustmentoftheconversionprice?

Theconvertiblebondwillreachmaturityinthenearfutureandthecompanyisinanimmediateneedofcapital Investor Non-InvestorYes 32% 49%No 68% 51%

Thecompany'ssharesaretradingconsistentlyatadiscounttotheconversionprice.Thedownwardadjustmentservestoavoidtheexerciseofaconditionalputoptionthatwouldresultinunexpectedcapitaloutlaybythecompany. Investor Non-InvestorYes 45% 46%No 55% 54%

ShareRepurchases(Singapore)

RelevantlistingrulesinSingaporelimitmarketsharerepurchasestoapricenotmorethan5percentabovetheaverageclosingmarketpriceoverthefivetradingdaysbeforetherepurchase.However,nospecificguidelineshavebeensetbythelistingruleswithregardtoanoff-marketsharerepurchaseprice.

CurrentISSBenchmarkPolicyistogenerallyvoteforresolutionsauthorizingacompanytorepurchaseupto10percentofitsownshares.Limitsonrepurchasepricesarenottakenintoaccountundertheexistingpolicy.

Shouldrepurchasepricelimitsbetakenintoaccountwhenevaluatingsharerepurchasemandateproposals?


Ifyouanswered"Yes"or"Itdepends"totheprecedingquestion,whatistheacceptablelimitformarketrepurchases?

Investor Non-Investor5percentabovemarketprice 48% 29%10percent 32% 46%20percent 0% 12%Other 19% 12%



Ifyouanswered"Yes"or"Itdepends"twoquestionsearlier,whatistheacceptablelimitforoff-marketrepurchases?

Investor Non-Investor5percentabovemarketprice 58% 47%10percent 23% 29%20percent 0% 8%Other 19% 16%

LoanGuarantees(Taiwan)

AccordingtoTaiwaneseregulations,alistedcompanymaymakeendorsements/guaranteesforparentcompanies,subsidiariesorbusinesspartners.

Inaddition,alistedcompanyshallspecifyceilingsonaggregateendorsementsorloanguarantees,aswellasendorsements/guaranteestoasingleentity;madebythecompanyitselfaswellasbythecompanyanditssubsidiariesasagroup.

Theregulationspermitalistedcompanytomakeendorsements/guaranteestoitscontrollingshareholderanddonotsetanyrestrictiononanyoftheaboveceilings.

Duringthe2017proxyseason,severalcompanieslistedinTaiwanproposedtoincreasethoseceilingsduetobusinessdevelopmentneedsbutwithoutdisclosinganyspecificrationaleordetails.Suchproposals,onceapproved,willgrantthecompanygreaterflexibilitytomakedecisionsonendorsement/guaranteeprovisions.Inaddition,thereexiststhepossibilitythatthecompanymayprovidemoreendorsements/guaranteestoitscontrollingshareholder.ISSgenerallyrecommendsavoteagainsttheprovisionofaguaranteetoaparentcompany.

WouldyourorganizationvoteagainstamendmentstotheProceduresforEndorsementandGuaranteesregardingtheincreaseofceilingsontheendorsements/guaranteesalistedcompanyispermittedtomake,duetothefollowingreasons?

Suchamendments,onceapproved,willallowthecompanytoprovidemoreendorsements/guaranteestoitscontrollingshareholder Investor Non-InvestorYes 91% 62%No 9% 38%

Thecompanyhasfailedtoprovideacompellingrationaleforsuchincrease Investor Non-InvestorYes 82% 69%No 18% 31%



Sincetheregulationdoesnotsetanyrestrictionsontheceilingsforendorsements/guarantees,somecompaniesmayproposeahigherceilingwhichmightbethreetimestheoriginalceiling.Doesyourorganizationchecktoseeifsuchincreaseisinproportiontogrowthinthecompany'sbusiness?


Acquisition/DisposalofAssets(Taiwan)TaiwanesecompaniesmayproposetoamendtheirProceduresGoverningtheAcquisitionorDisposalofAssetstoincreaseinvestmentlimitsonthefollowingassets:(1)realestatewhichisnotforoperationaluse;and(2)securitiesincludingequities.

Therationaleforsuchamendmentsisgenerally"tomeetthecompany'soperationalneeds."Generally,nofurtherdetailsaredisclosed.Suchamendments,onceapproved,willgrantcompanymanagementgreaterflexibilitytodecideoninvestmentinrealestatefornon-operationaluse,securities,etc.However,suchinvestmentscouldexposethecompanytounnecessaryrisks,especiallywhenthecompanydoesnothaveatrackrecordorprovenexperiencewithasimilarinvestment.Currently,ISSgenerallyrecommendsavoteFORtheseproposalsaslongastheproposedamendmentsaremostlyadministrativeinnatureandarebasedonoperationalneeds.

WouldyourorganizationvoteagainstamendmentstotheProceduresGoverningtheAcquisitionorDisposalofAssetstoincreasetheinvestmentlimitsonsecuritiesandrealestatefornon-operationaluse,forthefollowingreasons?

Suchamendmentscouldexposethecompanytounnecessaryrisks Investor Non-InvestorYes 88% 77%No 13% 23%

Thecompanyhasfailedtoprovideacompellingrationalefortheamendment Investor Non-InvestorYes 90% 83%No 10% 17%



5. TakeoverDefenses

PoisonPills(U.S.)

UnderISS'currentU.S.BenchmarkVotingPolicy,short-termpilladoptions(atermofoneyearorless)thatarenotputtoashareholdervoteareevaluatedonacase-by-casebasis,consideringthedisclosedrationaleforadoption,andthecompany’sgovernancepracticesandtrackrecord.

Regardinginitialadoptionsofshort-termpoisonpills,wouldyourorganizationapplyacase-by-caseapproachtotheseadoptionswhenvotingondirectorelections,usingISS'currentcriteria?

Investor Non-InvestorYes 83% 41%No,one-yearpilladoptionsaregenerallyacceptableandvotesagainstdirectorsarenotwarranted. 8% 56%Othercriteriashouldbeapplied 9% 3%



Thisdocumentandalloftheinformationcontainedinit,includingwithoutlimitationalltext,data,graphs,charts(collectively,theInformation”)arethepropertyofInstitutionalShareholderServicesInc.(“ISS”),itssubsidiaries,orinsomecasesthird-partysuppliers.TheInformationmaynotbereproducedordisseminatedinwholeorinpartwithoutpriorwrittenpermissionofISS.

Issuersmentionedinthisdocumentmayhavepurchasedself-assessmenttoolsandpublicationsfromISSCorporateSolutions,Inc.(“ICS”),awhollyownedsubsidiaryofISS,orICSmayhaveprovidedadvisoryoranalyticalservicestotheissuer.NoemployeeofICSplayedaroleinthepreparationofthisdocument.AnyissuerthatismentionedinthisdocumentmaybeaclientofISSorICS,ormaybetheparentof,oraffiliatedwith,aclientofISSorICS.

TheInformationhasnotbeensubmittedto,norreceivedapprovalfrom,theUnitedStatesSecuritiesandExchangeCommissionoranyotherregulatorybody.NoneoftheInformationconstitutesanoffertosell(orasolicitationofanoffertobuy),orapromotionorrecommendationof,anysecurity,financialproduct,orotherinvestmentvehicleoranytradingstrategy,norasolicitationofavoteoraproxy,andISSdoesnotendorse,approve,orotherwiseexpressanyopinionregardinganyissuer,securities,financialproducts,orinstrumentsortradingstrategies.

TheuseroftheInformationassumestheentireriskofanyuseitmaymakeorpermittobemadeoftheInformation.

ISSMAKESNOEXPRESSORIMPLIEDWARRANTIESORREPRESENTATIONSWITHRESPECTTOTHEINFORMATIONANDEXPRESSLYDISCLAIMSALLIMPLIEDWARRANTIES(INCLUDING,WITHOUTLIMITATION,ANYIMPLIEDWARRANTIESOFORIGINALITY,ACCURACY,TIMELINESS,NON-INFRINGEMENT,COMPLETENESS,MERCHANTABILITYANDFITNESSFORAPARTICULARPURPOSE)WITHRESPECTTOANYOFTHEINFORMATION.

Withoutlimitinganyoftheforegoingandtothemaximumextentpermittedbylaw,innoeventshallISShaveanyliabilityregardinganyoftheInformationforanydirect,indirect,special,punitive,consequential(includinglostprofits),oranyotherdamagesevenifnotifiedofthepossibilityofsuchdamages.Theforegoingshallnotexcludeorlimitanyliabilitythatmaynotbyapplicablelawbeexcludedorlimited.

TheGlobalLeaderinCorporateGovernance&ResponsibleInvestmentwww.issgovernance.com

2017-2018 iss policy application survey

Documents