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Proxy Governance Update: Assessing the Policy Updates of the Top Proxy Advisory Agencies

Here we cover:

  • Engagement with the Proxy Advisers – Boudicca’s latest operational observations of the engagement landscape.
  • Policy updates – our assessment of the policy updates of ISS, Glass Lewis, the Investment Association, PIRC, and Federated Hermes.
  • Priorities for the 2021 AGM season – our brief view of the proxy advisers’ position on the following:
  • Remuneration;
  • Board and Executive Diversity; and
  • Financial and Non-Financial Reporting


Engagement Landscape

The month of March marks the beginning of the AGM season for those with 31 December year-ends, with companies finalising AGM documentation and completing final rounds of engagement with their shareholders and the Proxy Advisers. Boudicca has been facilitating our clients in this regard, engaging with the top Proxy Advisers (ISS, Glass Lewis, Investment Association, PIRC), as well as the corporate governance and proxy voting teams of institutional investors across our live proxy solicitation mandates.

In terms of Proxy Adviser engagement, it is important to remember that March marks the beginning of the end of engagement season. From this month onwards, Proxy Advisers will begin to enter their closed periods, during which they will not engage with publicly listed companies. Glass Lewis generally begin this closed period in March, when they traditionally call a moratorium on engagement until after the proxy season unless the case in question is absolutely exceptional. Accordingly, if any of our readers should wish to book an engagement call with Glass Lewis on any topic relevant to their upcoming AGM, we urge them to do so quickly.

In the case of ISS, historically they have been willing to make themselves available into the month of April, though by the end of that month we expect them to devote their resources to research production. Thereafter, ISS will not have capacity for calls, so if you have any issues you wish to discuss with them we recommend you try to book a call with them over the coming weeks.


Assessment of the 2021 Policy Updates of ISS, Glass Lewis, IA, PIRC and Hermes

Now that we have had some time to digest the policy guidance updates of the Proxy Advisers, we include a summary of the Proxy Advisers 2021 Guidelines.



On 19 November 2020, ISS published its 2021 voting policies, which apply to all meetings from 1 February 2021 onwards. In comparison to the 2020 voting policy, there are some minor changes, as follows.

Board Gender Diversity
At least one woman on Board.FTSE 350 at least 33% women; All other indices at least one woman.Elaborate on previous policy to expect Hampton-Alexander compliance at Board level for FTSE 350 companies.
Share Issuance Proposals by Investment Companies
NoneUpdated Policy to reflect PEG Guidelines for share issuances by investment companies.Shares should only be issued at or above net asset value.

Board Gender Diversity

As summarised in the table above, ISS will now generally recommend a vote against the Chair of the Nomination Committee if the company is a constituent of the FTSE 350 and the board does not comprise at least 33% representation of women. For companies outside the FTSE 350, they will recommend voting against the Chair of the Nomination Committee when there is not at least one woman on the Board.

ISS cite potential mitigating factors to include compliance with the relevant Board diversity standard at the preceding Annual Meeting. In the case of FTSE 350 constituents, for 2021 only, a public commitment to bring the composition of the Board in line with the recommendations of the Hampton-Alexander Review by the following Annual Meeting will be considered an acceptable mitigating factor, regardless of the previous composition of the board.

For more information about ISS and other FAQs, please see: Engagement Process: FAQs – Link; and UK and Ireland Policy Guidelines (2021) – Link



The following applies to the 2021 AGM season.

2021 Policy2021 PolicyChange
Board Diversity
FTSE 350 at least 33% woman. At least disclosure on ethnic diversity.FTSE 350 at least 33% women; All other LSE main market companies at least one woman. Note where FTSE 350 companies do not provide disclosure on ethnic diversity.Elaborates on previous policy to explicitly state will make voting recommendations for a lack of Board level gender diversity.
Human Capital Management
NoneWhere a board has failed to respond to legitimate concerns with a company’s human capital management practices, may recommend voting against the Chair of the Governance Committee or the Board, as applicable.


This is a new addition to their voting policy.
ESG Risk Oversight
Note concerns on a case by case basis.Note a concern where FTSE 100 companies do not disclose board-level oversight afforded to ESG issues.From January 1, 2022, they will generally recommend voting against the governance chair for lack of disclosure.


Environmental and Social Initiatives
General Statement to the effect that they assess such Resolutions on a case-by-case basis.Assess shareholder proposals on ESG issues in the context of financial materiality.Reflects their specific voting policy for shareholder submitted resolutions.
Virtual Shareholder Meetings
Update to policies disclosed over the course of 2020 on their website.Clear procedures for shareholders participation in virtual-only shareholder meetings.New addition to their voting policy.
Alignment of Remuneration with Stakeholder Experience
Update to policies disclosed over the course of 2020 on their website, in line with Investment Association.Expect Remuneration Committee to retain discretion to ensure that remuneration outcomes align with company performance, and stakeholder experience.New addition to their voting policy reflecting market expectations.
As AboveForward-looking decisions regarding executive remuneration should also take into account the experience of shareholders and employees.As above
Smaller Premium-Listed Companies – Board Elections and Independence
Highlighted the fact that they would no longer make exceptions on this issue.No longer facilitate exceptions for premium-listed companies outside the FTSE 350, expect them to comply with the UK Code.End of exception due to evolving market practice.
Investment Company Boards
NoneMay provide exceptions for directors who serve on boards of multiple investment companies.New addition to their policy.

As can be seen in the table above, Glass Lewis have updated a number of areas of their Policy, with a strong focus on ESG reporting and stakeholder engagement.

Board and Workforce Diversity

The big driver of voting recommendations will be gender diversity, and Glass Lewis state that they will generally recommend against the Chair of the Nomination Com­mittee at any FTSE 350 board that has failed to meet the 33% Board gender diversity target. For companies outside the FTSE 350, they state that they will take similar action where the Board is composed solely of directors of one gender.

ESG Concerns

Glass Lewis have expanded their policy to allow them to recommend voting against the appropriate Board members, where they see significant issues around Human Capital Management, and will begin making similar recommendations where they have concerns around disclosure of Board level ESG risk management in 2022.

Alignment of Remuneration with Stakeholder Experience

Reflecting general market expectations, Glass Lewis expect the Remuneration Committee to exercise discretion to ensure that remuneration outcomes for Executive Directors align with company performance and the stakeholder experience. They may recommend a vote against the Re­muneration Report where there is substantial misalignment in this regard.

Furthermore, they have outlined that forward-looking decisions regarding executive remuneration should also take into account the experience of shareholders and employees. They may recommend that shareholders vote against the Remuneration Policy where there is evidence that Executive fixed pay and/or total opportunity increases are substantially outpac­ing employee salary increases.

For more information about Glass Lewis please see: Fact Sheet: Link; and UK Policy Guidelines for 2021: Link



The Investment Association (IA) has made some substantial updates to their policies, in the context of wider trends in climate change reporting and Board and Senior Management diversity, as well as the impact of COVID-19 on publicly listed companies.

Shareholder Priorities for 2021

Financial Disclosures
Noted company disclosure.Amber Top the ESG report of any company in a high-risk sector that does not address all four pillars of TCFD.Introduction of reporting standard expectation and colour top approach.
As aboveHighlight FTSE All-Share companies that include a statement that material climate-related matters have been incorporated in accounts.Note companies who do not take climate-related matters into account when preparing their Annual Report.
Audit Quality
As aboveWorking with BEIS and the FRC to ensure that companies disclose how they judge audit quality.If they do not see progress in 2021 IVIS will introduce a colour top approach in 2022.
Ethnic Diversity
As aboveAmber Top FTSE 350 companies that do not disclose either of: Ethnic diversity of their Board; Credible action plan to achieve the Parker Review targets.Reporting expectation on Parker Review targets.
Gender Diversity
Red Top for FTSE 350 companies where women represent: 20% or less of the Board; 20% or less of the Executive Committees and their direct reports. Amber Top for FTSE SmallCap companies where women represent: 25% or less of the Board; 25% or less of the Executive Committees and their direct reports.Red Top for FTSE 350 companies who do not meet Hampton-Alexander targets at Board, Executive Committee and their direct reports?; Amber Top for FTSE SmallCap Companies were: Female representation on the Board is 30% or less; Female representation of 25% or less in their Executive Committee and its direct reports.Increase in minimum gender diversity quota.

Climate Change Related Financial Reporting

Changes to the Shareholder Priorities reflect the growing focus amongst the IA’s members on non-financial reporting, and financial reporting related to climate change. As summarised above, the Investment Association’s members are looking for companies to report climate change impacts in line with the Taskforce for Climate related Financial Disclosures (TCFD), reflecting the FRC’s recommendations in this area. Furthermore, they reflect the growing interest shown by the Investment Association’s members in ethnic and gender diversity at Board and Senior Management levels.

IVIS will Amber Top the ESG report of any company in the high-risk sectors identified by the TCFD that does not address all four pillars of TCFD (Governance; Risk Management; Strategy; Metrics & Targets). Additionally, IVIS will highlight further disclosures from companies through the following questions:

  • Has the company identified a board director or board committee responsible for overseeing the company’s approach to climate change? 
  • Does the company make specific reference to the impact of climate-related risks and opportunities on its approach to capital management?
  • Has the company disclosed emission reduction targets and the timeframe for achieving these targets?
  • Has the Company committed to align its business model/operations with the Paris Agreement explained how this will be achieved?

Ethnic Diversity

Beginning in 2021, IVIS will Amber Top any FTSE 350 companies that do not disclose either the ethnic diversity of their board or the credible action plan it has in place to achieve the Parker Review targets.

Gender Diversity

Elaborating on their 2020 Guidelines, in 2021 IVIS will

  • Red Top the Corporate Governance Report
  • Amber Top the Corporate Governance Report for FTSE SmallCap Companies where
  • Female representation on the Board is 30% or less;
  • Female representation of 25% or less in their Executive Committee and its direct reports.


Shareholder Expectations during the COVID-19 Pandemic

In light of the COVID-19 pandemic and its economic repercussions, the Investment Association has provided a list of questions and answers in a Letter circulated in November 2020.


If a company has taken Government support or additional capital from shareholders what should the impact be on Executive Pay?

How should Remuneration Committees consider the impact of other indirect government support such as Business rate relief?

What do shareholders expect if a Company has suspended or cancelled its dividend in relation to FY2019 or FY2019/20?

Would shareholders support performance conditions being adjusted to take account of COVID 19?

Impact Summary

Financial Assistance

Where a company has:

  • Cancelled dividends or;
  • Raised additional capital from shareholders or;
  • Required Government support (loans, employment schemes, business rates etc.).

In such circumstances, they generally do not expect annual bonuses for FY2020 or FY2020/21 to be paid unless there are truly exceptional circumstances.

Workforce Alignment

In the Letter, the IA highlight the fact that COVID 19 has resulted in many employees being furloughed, asked to take pay cuts or resulting in large scale redundancies. They state that failure to take account of the above issues in variable pay outcomes for Executive Directors may lead to workforce morale or productivity issues, as well as potential reputational damage.

Variable Compensation

The IA states that its members do not expect Remuneration Committees to adjust performance conditions for variable compensation to account for the impact of COVID 19 and expect this to be confirmed in the Remuneration Committee Chair Statement. They also expect Remuneration Committees to use their discretion to ensure a good link between pay and performance, to justify the use of such discretion and to engage with their shareholders when they do so.

Furthermore, they do not expect LTIP grants to be cancelled and replaced with another long-term incentive grant, or for executives to be compensated with higher variable remuneration opportunity in 2021 for lower remuneration received in 2020 due to the pandemic.

Issues to consider for individual elements of pay


Shareholders expect companies to show continued restraint. Increases to salary, if necessary, should be in line with changes to the wider workforce.


Members noted that whilst they understand that more companies are likely to use their discretionary powers with regards to variable pay in the coming year, it is important that this is matched with increased disclosures concerning the rationale and outcomes for such discretion.

This includes:

  • A higher level of disclosure on how Committees have determined financial targets (especially when they are lower than the previous year);
  • Why they may have allowed for pay outs under non-financial elements only;
  • Shareholders generally do not expect bonus payments when the company has taken Government or shareholder support; and
  • Bonuses should reflect the wider employee experience.

Long Term Incentives

Windfall gains – Remuneration Committees should set out in their Remuneration Report the approach and factors they will or have considered when judging if there has been a windfall gain from LTIP grants made in 2020. For those that reduced the size of the grant, this should also be stated.

Grant size for future awards – Remuneration Committees need to be proactive in determining the appropriate LTIP award size in the current market environment given sustained share price falls. Making awards at maximum opportunity in cases where share prices have fallen substantially is to be discouraged. Committees should consider reducing LTIP grants to reflect the shareholder experience.

Performance measures – Remuneration Committees will have to consider if the performance conditions for future LTIP grants are still appropriate in the current market environment. Shareholders want performance conditions to be appropriately stretching. Given the difficultly of setting long-term performance conditions, Remuneration Committees will have to consider the appropriate performance metrics and stretch of individual performance targets.

In an update published in February 2021, the IA noted that some companies continued to have difficulty setting realistic financial targets to measure long-term performance. In such circumstances, the IA members are willing to accept companies delaying setting performance conditions by up to six months, with appropriate disclosure and explanation both before and after doing so, through Meeting documents and RNS Statements. IA members also accept that, in cases where a company has been forced to delay setting performance conditions, a shorter performance period might be appropriate, and will accept shortening the period by up to six months, subject to appropriate justification. Where a performance period is shortened, they expect grant size to be reduced appropriately.

Policy area: Link, Shareholder Priorities for 2021: Link, Principles of Remuneration for 2021: Link, Shareholder Expectations during the COVID-19 Pandemic: Link.



Federated Hermes have grown to be a substantial provider of proxy voting services to other fund managers in recent years, with an influence on the holdings for which they provide stewardship services to other fund managers. While their influence is small in reference to the big three Proxy Advisers, it is growing, and given the stronger line they take on certain areas, it is wise to pay attention to their opinions. Here, we note the areas of their Voting Policy where they take a stronger line than the major Proxy Advisers.

Ethnic Diversity

Hermes have stated that they will consider recommend voting against the Chair of FTSE 100 Boards that do not have at least one Director from a minority ethnic background and have no credible plan to achieve the Parker Review target. Furthermore, they will recommend voting against the Chair at FTSE 100 companies that do not disclose information on the Parker Review target and do not make a firm commitment to do so in the future.

Climate Change

Hermes will consider recommending a vote against the Board Chair at companies that do not demonstrate sufficient management of climate-related risks. To assess this question, they cite the Transition Pathway Initiative as a rating system they use, as well as a company’s alignment with the Paris Agreement goals.

Executive Remuneration

Hermes are quite sceptical of performance pay packets, which they see as responsible only for increasing the misalignment between executive salaries and the average industrial wage. While they state that they will not recommend voting against the traditional UK model of salary, bonus and LTIP, at the present time, they indicate that they will consider doing so in future. Reflecting the expectations of more demanding investors, Hermes expects executive shareholding requirements to be a minimum of 400% for FTSE 100 companies, and 300% for FTSE 250 companies.

Auditor Rotation

Hermes state that, for the UK market, they encourage companies to consider mandatory auditor rotation after fifteen years, in lieu of the twenty years which has become the market norm.

Policy Library Link; Global Voting Guidelines Link; Remuneration Principles Link; Remuneration Principles – Clarifying Expectations Link;



Another Proxy Adviser covering the UK market is Pensions and Investments Research Consultants, or ‘PIRC’. As at the date of this report, the PIRC 2021 UK Shareholder Voting Guidelines have not yet been made publicly available, though they state that they will send their voting guidelines to companies on whose AGMs they have written a Proxy Report.

In a consultation document published in September 2020, PIRC outlined their thoughts on “Pay for a new world”. Taking a typically controversial line on Executive Remuneration, PIRC state that they believe that “the fallacy of ‘alignment’ with shareholders needs to be retired.” Thereafter, they lay out their argument for a restoration of a simple market salary without standard variable pay. Instead, they propose initiatives such as bonus pools and extraordinary bonuses, which some may recall were quite common in the years before shareholder votes on Executive Remuneration. This nostalgic call for a return to simpler times may well appeal to some, though it is worth noting that PIRC’s influence as a Proxy Adviser is somewhat limited. They do handle Proxy Voting for many Local Authority Pension Funds, however, so their opinions should not be ignored.

Guidelines: The PIRC 2020 UK Shareholder Voting Guidelines are not made publicly available, but Boudicca have reviewed a copy. 2021 Guidelines are not yet available. Pay for a new world Link


A Brief View of the Proxy Adviser and Shareholder Priorities for the 2021 AGM Season

Based on the details provided above, we forecast the stances that we expect the Proxy Advisers and institutional investors to take over the coming AGM season. It is important to note at the outset that companies can expect the Policies summarised above to be enforced quite strictly, with very little tolerance for exceptions. This view comes from our recent experience engaging with the Proxy Advisers and the narrative from their policy updates. That being said, the reasonably hard line laid out over the autumn and winter by both the Proxy Advisers and institutional investors is likely to thaw as time moves on, given the realities of the past year which will likely provide the context in which exceptions to those policies will need to be made. Accordingly, it is our view that engagement with the Proxy Advisers and shareholders is more important than ever in the run-up to this AGM season, to give companies the opportunity to vocalise their situation and test their explanations and rationale against the sounding board provided by engagement.


LTIPs – While public statements generally highlight the option of reducing grant levels to reflect the broad drop in share price over the past year, a company may wish to maintain grant levels in line with longstanding Remuneration Policies. In which case a firm commitment to use available discretion to limit any windfall gains will constitute mitigation enough to mean that the Proxy Advisers are unlikely to recommend against approval of relevant Resolutions.

Bonuses and LTIP vesting – As can be seen from the summary of the policies above, both the Proxy Advisers and the Investment Association’s members expect there to be very little variable remuneration pay-outs in respect to 2020, unless there is a compelling justification. Accordingly, where companies feel justified in paying a small bonus, or honouring a vested LTI award, they will need to carefully justify doing so, and can expect significant opposition if those justifications are not found to be compelling.

Company reactions – Helping the situation are the instances of Executives voluntarily forgoing pay increases and even reducing salaries, and Remuneration Committees exercising discretion to reduce formulaic outcomes. Such moves will give confidence to investors that the wider impacts of the Pandemic are being taken seriously.

The Perfect Storm – Given the IA expectations highlighted above, there is a high potential for proxy adviser and investor dissent where companies cut dividends, asked for large capital increases, took government support and/or laid off staff, while at the same time wanting to offer substantial growth awards to their management.

Should a company see itself as justified in paying variable remuneration in such circumstances, they can expect significant scrutiny and should assume that the Remuneration Report will see substantial dissent.

Board and Executive Diversity

Given the positions taken by ISS and Glass Lewis on Board level gender diversity, companies who have not aligned their Board composition with the Hampton-Alexander targets can expect to see recommendations to vote against relevant Board members re-election to the Board. Perhaps more surprising for some will be the fact that IVIS will Red Top companies not having at least 25% female representation amongst Executive Committee members and their Direct Reports. According to the Hampton-Alexander Review’s website, most companies are only just above this target, meaning that some companies may see against votes against relevant Board members for a lack of female representation at the Senior Management level over the coming AGM season.

In terms of ethnic diversity, the picture is less clear, as the major Proxy Advisers have not indicated a strong intention to recommend voting against relevant Board Members for a lack of compliance with the Parker Review targets. That being said, given the level of media attention given to matters of diversity, it seems likely that some companies may see dissent if they do not at least disclose a plan for addressing a perceived lack of ethnic diversity in their Annual Report. Furthermore, shareholder dissent around this issue is only likely to increase as we move forwards into 2022.

Financial and Non-Financial Reporting

Given the significant expansion of reporting requirements over the past number of years, the quality of those disclosures is coming into focus for many shareholders, something best signalled by the IA’s Shareholder Priorities for 2021. IVIS will Amber Top companies who do not report against all four pillars of the TCFD standard for climate related financial disclosures and will highlight FTSE All-Share companies that include a statement that material climate-related matters have been incorporated in accounts. Overall audit quality is also an area of focus, and it is possible that IVIS will introduce a colour top approach to this issue in 2022. Workforce engagement, and wider stakeholder relationship management, will also likely become an area of increasing focus, now that Section 172 reporting has become the norm. Given the radical change in the type and extent of reporting now expected of a publicly listed company on the London Stock Exchange, such companies can expect that the quality of their audited accounts, their management of relations with their stakeholders, their management of risks associated with climate change, as well as the quality of their related disclosures, will be the subject of increasing scrutiny over the coming reporting cycles.