Glass Lewis (“GL”) recently released its annual Benchmark Policy Guidelines for 2024.  This update makes several changes to how the proxy advisory firm will evaluate company policies related to executive compensation.  Institutional Shareholder Services (“ISS”) also released updates to its voting policies for 2024, including new and updated responses to its Compensation Policies FAQ.

A potentially overlooked but important issue that public companies should have in mind when granting option or option-like awards is avoiding the unintentional appearance of “spring-loading” and “bullet-dodging,” both of which have been a recent focus of the SEC and shareholders and viewed as potentially poor corporate governance practices.

“Spring-loading” is when a public company grants option or option-like awards shortly before the release of positive material nonpublic information, which is expected to increase the company’s stock price. The grantee of a spring-loaded award immediately benefits from the increase in the stock price. For example, if stock options are granted with an exercise price of $10 per share before market trading, and a positive earnings release causes the stock price to close the same day at $15 per share, each option would already be $5 in-the-money.

The converse of spring-loading is “bullet-dodging,” which is when a public company grants option or option-like awards shortly after the release of negative material nonpublic information, which is expected to decrease the company’s stock price. Again, the grantee immediately benefits from the decrease in the stock price. For example, if stock options are scheduled to be granted before market trading with an exercise price of $15 per share, but the grant is made after a negative earnings release, or more significantly if it is delayed until after the negative earnings release, and the stock price has since closed at $10 per share, the company would have avoided granting options that would each be $5 out-of-the-money.

Proxy advisory firms Institutional Shareholder Services (“ISS”) and Glass Lewis (“GL”) each published their annual policy updates for 2023, which updates made certain changes relating to executive compensation.[1]  As a general matter, the changes are incremental to the existing policies and do not significantly change the rubric by which ISS and GL review compensation