Introduction

On 17 December, ISS announced updates to their guidelines for the 2025 AGM season, which apply to shareholder meetings taking place on or after 1 February 2025. ISS has published a high-level overview of all changes, as well as a comparison that covers the Benchmark Policy changes in 2025 compared to 2024.

This memo summarizes the policy changes that will be applied across their UK & Ireland and Continental Europe guidelines.

The changes relate to Remuneration and Equity-based Incentive Plans, Share Issuance Authorities, Auditors and Virtual Shareholder Meetings.

Updates on the UK & Ireland guidelines

Board Diversity

ISS has updated both the Board Gender and Ethnic Diversity policy removing the now obsolete categories of premium and standard companies. This change is in line with the update to the UK Listing Rules published by the FCA (ISS guidelines now refer to “companies required to report against FCA Listing Rules”).

The policy clarifies that, for companies reporting against the FCA Listing Rules, progress against the FCA targets in terms of gender and ethnic diversity will be evaluated and ISS may recommend “against the chair of the nomination committee (or another relevant director) in the absence of such progress, unaccompanied by a satisfactory rationale”. ISS expects higher diversity standards for FTSE 350 companies, while board diversity requirements for ISEQ 20 companies was raised to 33% of the Board (compared to the previous guideline of at least one woman on the Board) in line with the Irish Government’s Balance for Better Boards.

Board and Committee Composition

Changes now reflect the FCA update to the UK Listing Rules deleting the categories of premium and standard companies.

Remuneration Policy

The policy update reflects the changes to the Principles of Remuneration of The Investment Association, published on 9 October 2024. Key changes are as follow:

  • Mitigating factors, such as the frequency of pay reviews, will no longer be considered in cases where remuneration committees use a benchmarking analysis to justify pay increases;
  • Remuneration committees are now expected to “justify their salary decisions based on the talent markets they are recruiting from”;
  • It is suggested that LTIPs “should be appropriate for a company's individual circumstances, support the company's strategic objectives and take into account the remuneration structures of the wider workforce”;
  • Companies are recommended to disclose “the circumstances and period in which malus and clawback could be used”, as well as details on the possible use of such provisions in the reporting period.

Capital Requirements Directive

The policy updates reflect that UK banks and investment companies are no longer subject to the variable-to-fixed remuneration cap. Irish banks and investment companies are still subject to this regulation, but “given the now extremely limited number of companies still subject to the so-called ‘banker’s bonus cap’ under the UK & Ireland coverage, the CRD V section is being removed.”

Remuneration Report – Dilution Limits (Approval of a new or amended LTIP)

The guideline on share capital dilution related to incentive schemes was updated to reflect the changes to the Principles of Remuneration of The Investment Association: only the 10% in 10-year dilution limit applicable to all incentive schemes has been maintained. However, ISS still considers the 5% dilution limit to be best practice, and companies are expected to explain the appropriateness of commitments to exceed such limit when issuing new shares or re-issuing treasury shares to serve the executive scheme.

Remuneration Policy and Report – Smaller Companies

The updated policy incorporates the new provisions of the revised QCA Corporate Governance Code, adopted by many smaller UK companies. As such, with effect from financial years beginning on or after 1 April 2024, smaller companies are recommended to “put their remuneration reports and remuneration policies to advisory shareholder votes and subject all Board Directors to annual re-election”. Specifically, an annual advisory vote is suggested for the remuneration report, as well as for remuneration policies “where a binding vote is not mandated”. In addition, share plans and long-term incentive schemes should now be submitted to a shareholder vote.

ISS has also introduced additional voting considerations in line with market standards:

  • ISS may recommend against smaller companies’ remuneration policies in cases where performance or vesting periods of incentive awards is shorter than three years;
  • Regarding smaller companies’ remuneration reports, ISS may recommend against if:
  • Significant salary increases are not adequately justified;
  • Incentives awarded during the year are not performance-based;
  • “Executive directors appointed during the year under review are not employed under formal service contracts, or service contracts signed during the year provide for more than 12 months' notice in the event of termination”;
  • Guaranteed or transaction-related bonuses were paid to directors during the year under review without sufficient rationale.

Updates on the Continental Europe guidelines

Appointment of Auditors and Auditor Fees

ISS has amended its policy on proposals to (re)appoint auditors and/or authorizing the board to fix auditor fees, reflecting the applicability of the regulation adopted in 2014 by the European Union, which requires public interest entities to rotate their statutory auditor, setting a 10-year maximum duration for the audit mandate, although this could be extended up to 20 years (24 years in case of a joint audit) following a public tender after 10 years.

The 2025 ISS policy lists among the circumstances that could lead to a negative recommendation on the (re)appointment of auditors and/or the authorization to fix auditors fees that:

“The auditor has been engaged for more than 10 years without a public tender, or for more than 20 years (24 years in case of a joint audit) following a public tender after 10 years, for companies listed on a regulated market. A public commitment to conduct a tender process will be considered a mitigating factor”.

Moreover, ISS specifies that “A one-year transitional period will apply in 2025 and the policy will be applicable from Feb.1, 2026”.

Bundling of Proposals to Elect Directors (Spain)

ISS has updated its policy to include Spain among the countries in which bundled director elections may trigger a recommendation to vote against.

The Spanish corporate law (Companies Enterprise Act) specifies which agenda items should be voted on separately, and it only applies to companies that trade their shares on the regulated market. However, individual directors' elections are considered by ISS a good market practice; hence the guidelines are also applied to companies in the non-regulated market.

Board Independence (Nordic markets)

The definition of “widely-held companies” for the Nordic markets, as provided by the 2025 ISS policy, removes the reference to the MSCI EAFE index. ISS states that “this change reflects the standards applied by large companies in the Nordic region, and with the standards stipulated by local corporate governance codes. The updated coverage universe and intended scope under the widely-held framework is reflective of local market lists/indices that are well known and used by investors in the local market”.

The 2024 ISS policy stated the following:

“Widely-held companies are determined based on their membership in a major index and/or the number of ISS clients holding the securities. For Sweden, Norway, Denmark, and Finland, this is based on membership on a local blue-chip market index and/or MSCI EAFE companies.”

The 2025 ISS policy now states:

“Widely-held companies are determined based on their membership in a major index and/or the number of ISS clients holding the securities. For Sweden, Norway, Denmark, and Finland, this is based on membership on a local blue-chip market index and/or either the Nasdaq Nordic Large Cap list or Oslo Børs Benchmark GI index”

For Portugal, the local main index (PSI) includes all MSCI EAFE's Portuguese constituents. As such, the reference to Portugal has become obsolete.

Overboarded Directors (Portugal)

Despite there not being a specific maximum number of directorships in the Portuguese Corporate Governance Code, the existing ISS guideline on overboarding now also applies to Portugal:

  • Maximum of five mandates at listed companies in total (chair positions counting as two mandates and executive positions as three mandates);
  • Directors or candidates holding an executive mandate (or a comparable role) at one company and serving as non-executive chair at a different company will be deemed to be overboarded.

Share Issuance Authorities (France)

According to the new law 2024-537, under the French regulation the maximum discount of 10% for issuances without pre-emptive rights has been removed, allowing flexibility for boards to propose a higher discount. Despite this, ISS  has maintained the 10% limit in line with the results of its 2025 policy survey (in which 58% of investors’ answers agreed with maintaining the existing guideline).

Virtual Meetings

Updates to this policy reflect investor sentiment on virtual-only shareholder meetings which emerged from the ISS policy survey. When assessing proposals concerning the possibility to hold virtual-only meetings, ISS has removed the following consideration;
“Rationale of the circumstances under which virtual-only meetings would be held”
and has now included the following considerations:

  • “assurance that the authority would only be used in exceptional situations requiring restrictions on physical attendance.
  • The use of past authorizations to hold virtual-only meetings and the accompanying rationale for doing so.”

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