2023 Policy Guidelines United States

2023 Policy Guidelines

www.glasslewis.com

United States

 
 
2023 Policy Guidelines — United States 
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Table of Contents 
About Glass Lewis .................................................................................................... 6 
Guidelines Introduction ........................................................................................... 7 
Summary of Changes for 2023 ........................................................................................................................ 7 
A Board of Directors that Serves Shareholder Interest ....................................... 12 
Election of Directors......................................................................................................................................... 12 
Independence ................................................................................................................................................................ 12 
Committee Independence .......................................................................................................................................... 15 
Independent Chair ........................................................................................................................................................ 16 
Performance ................................................................................................................................................................... 17 
Board Responsiveness ................................................................................................................................................. 18 
The Role of a Committee Chair .................................................................................................................................. 19 
Audit Committees and Performance ......................................................................................................................... 20 
Standards for Assessing the Audit Committee........................................................................................................ 20 
Compensation Committee Performance .................................................................................................................. 23 
Nominating and Governance Committee Performance ........................................................................................ 25 
Board-level Risk Management Oversight ................................................................................................................. 28 
Board Oversight of Environmental and Social Issues ............................................................................................ 29 
Cyber Risk Oversight .................................................................................................................................................... 30 
Board Accountability for Environmental and Social Performance....................................................................... 30 
Director Commitments ................................................................................................................................................. 31 
Other Considerations ................................................................................................................................................... 32 
Controlled Companies ................................................................................................................................................. 33 
Significant Shareholders .............................................................................................................................................. 35 
Governance Following an IPO, Spin-off, or Direct Listing ..................................................................................... 35 
Governance Following a Business Combination with a Special Purpose Acquisition Company .................. 36 
Dual-Listed or Foreign-Incorporated Companies .................................................................................................. 37 
OTC-listed Companies ................................................................................................................................................. 37 
Mutual Fund Boards...................................................................................................................................................... 38 

 
 
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Declassified Boards .......................................................................................................................................... 39 
Board Composition and Refreshment .......................................................................................................... 40 
Board Diversity .................................................................................................................................................. 41 
Board Gender Diversity ................................................................................................................................................ 41 
Board Underrepresented Community Diversity ..................................................................................................... 41 
State Laws on Diversity ................................................................................................................................................. 42 
Disclosure of Director Diversity and Skills ................................................................................................................ 42 
Stock Exchange Diversity Disclosure Requirements .............................................................................................. 43 
Proxy Access ...................................................................................................................................................... 43 
Majority Vote for Election of Directors ......................................................................................................... 43 
The Plurality Vote Standard ......................................................................................................................................... 44 
Advantages of a Majority Vote Standard .................................................................................................................. 44 
Conflicting and Excluded Proposals ............................................................................................................. 44 
Transparency and Integrity in Financial Reporting .............................................. 47 
Auditor Ratification........................................................................................................................................... 47 
Voting Recommendations on Auditor Ratification ................................................................................................. 48 
Pension Accounting Issues ............................................................................................................................. 49 
The Link Between Compensation and Performance ........................................... 50 
Advisory Vote on Executive Compensation  (Say-on-Pay)........................................................................ 50 
Say-on-Pay Voting Recommendations ...................................................................................................................... 51 
Company Responsiveness ........................................................................................................................................... 52 
Pay for Performance...................................................................................................................................................... 53 
Short-Term Incentives ................................................................................................................................................... 54 
Long-Term Incentives ................................................................................................................................................... 55 
Grants of Front-Loaded Awards ................................................................................................................................. 56 
Linking Executive Pay to Environmental and Social Criteria ................................................................................. 57 
One-Time Awards ......................................................................................................................................................... 58 
Contractual Payments and Arrangements ............................................................................................................... 59 
Sign-on Awards and Severance Benefits .................................................................................................................. 59 
Change in Control ......................................................................................................................................................... 60 
Excise Tax Gross-ups .................................................................................................................................................... 60 

 
 
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Amended Employment Agreements ........................................................................................................................ 60 
Recoupment Provisions (Clawbacks) ......................................................................................................................... 60 
Hedging of Stock ........................................................................................................................................................... 61 
Pledging of Stock .......................................................................................................................................................... 61 
Compensation Consultant Independence ............................................................................................................... 62 
CEO Pay Ratio ................................................................................................................................................................ 62 
Frequency of Say-on-Pay ................................................................................................................................ 63 
Vote on Golden Parachute Arrangements .................................................................................................. 63 
Equity-Based Compensation Plan Proposals .............................................................................................. 63 
Option Exchanges and Repricing .............................................................................................................................. 65 
Option Backdating, Spring-Loading and Bullet-Dodging .................................................................................... 65 
Director Compensation Plans ........................................................................................................................ 67 
Employee Stock Purchase Plans .................................................................................................................... 67 
Executive Compensation Tax Deductibility — Amendment to IRC 162(M) ........................................... 67 
Governance Structure and the Shareholder Franchise ....................................... 69 
Anti-Takeover Measures ................................................................................................................................. 69 
Poison Pills (Shareholder Rights Plans) ..................................................................................................................... 69 
NOL Poison Pills............................................................................................................................................................. 69 
Fair Price Provisions ...................................................................................................................................................... 70 
Quorum Requirements .................................................................................................................................... 71 
Director and Officer Indemnification ............................................................................................................ 71 
Officer Exculpation ........................................................................................................................................................ 71 
Reincorporation ................................................................................................................................................ 72 
Exclusive Forum and Fee-Shifting Bylaw Provisions .................................................................................. 73 
Authorized Shares ............................................................................................................................................ 73 
Advance Notice Requirements ...................................................................................................................... 74 
Virtual Shareholder Meetings ........................................................................................................................ 75 
Voting Structure ................................................................................................................................................ 76 
Multi-Class Share Structures ........................................................................................................................................ 76 
Cumulative Voting ......................................................................................................................................................... 76 

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Supermajority Vote Requirements ............................................................................................................................. 77

Transaction of Other Business ....................................................................................................................... 77

Anti-Greenmail Proposals ............................................................................................................................... 78

Mutual Funds: Investment Policies and Advisory Agreements ............................................................... 78

Real Estate Investment Trusts ......................................................................................................................... 78

Preferred Stock Issuances at REITs............................................................................................................................. 79

Business Development Companies .............................................................................................................. 79

Authorization to Sell Shares at a Price Below Net Asset Value ............................................................................. 79

Auditor Ratification and Below-NAV Issuances ....................................................................................................... 80

Special Purpose Acquisition Companies ..................................................................................................... 80

Extension of Business Combination Deadline ......................................................................................................... 80

SPAC Board Independence ........................................................................................................................................ 81

Director Commitments of SPAC Executives ............................................................................................................. 81

Shareholder Proposals .................................................................................................................................... 81

Overall Approach to Environmental, Social & Governance Issues .................... 82

Connect with Glass Lewis ...................................................................................... 84

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About Glass Lewis

Glass Lewis is the world’s choice for governance solutions. We enable institutional investors and publicly

listed companies to make sustainable decisions based on research and data. We cover 30,000+ meetings each

year, across approximately 100 global markets. Our team has been providing in-depth analysis of companies

since 2003, relying solely on publicly available information to inform its policies, research, and voting

recommendations.

Our customers include the majority of the world’s largest pension plans, mutual funds, and asset

managers, collectively managing over $40 trillion in assets. We have teams located across the United States,

Europe, and Asia-Pacific giving us global reach with a local perspective on the important governance issues.

Investors around the world depend on Glass Lewis’ Viewpoint platform to manage their proxy voting, policy

implementation, recordkeeping, and reporting. Our industry leading Proxy Paper product provides

comprehensive environmental, social, and governance research and voting recommendations weeks ahead of

voting deadlines. Public companies can also use our innovative Report Feedback Statement to deliver their

opinion on our proxy research directly to the voting decision makers at every investor client in time for voting

decisions to be made or changed.

The research team engages extensively with public companies, investors, regulators, and other industry

stakeholders to gain relevant context into the realities surrounding companies, sectors, and the market in

general. This enables us to provide the most comprehensive and pragmatic insights to our customers.

Join the Conversation

Glass Lewis is committed to ongoing engagement with all market participants.

[email protected] | www.glasslewis.com

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Guidelines Introduction

Summary of Changes for 2023

Glass Lewis evaluates these guidelines on an ongoing basis and formally updates them on an annual basis. This

year we’ve made noteworthy revisions in the following areas, which are summarized below but discussed in

greater detail in the relevant section of this document:

Update: 15 December 2022. We have clarified on pages 8 and 42 that we will generally recommend against a

nominating and governance committee chair at companies in the Russell 1000 index if the company has not

provided any disclosure of director diversity and skills in any of our tracked categories, rather than any

disclosure in each category.

Board Diversity

Gender Diversity

We are transitioning from a fixed numerical approach to a percentage-based approach for board gender

diversity, as announced in 2022.

Beginning with shareholder meetings held after January 1, 2023, we will generally recommend against the chair

of the nominating committee of a board that is not at least 30 percent gender diverse at companies within the

Russell 3000 index. For companies outside the Russell 3000 index, our existing policy requiring a minimum of

one gender diverse director will remain in place.

Additionally, when making these voting recommendations, we will carefully review a company’s disclosure of its

diversity considerations and may refrain from recommending that shareholders vote against directors when

boards have provided a sufficient rationale or plan to address the lack of diversity on the board, including a

timeline to appoint additional gender diverse directors (generally by the next annual meeting).

Underrepresented Community Diversity

We have expanded our policy on measures of diversity beyond gender. Beginning in 2023, we will generally

recommend against the chair of the nominating committee of a board with fewer than one director from an

underrepresented community on the board at companies within the Russell 1000 index.

We define “underrepresented community” as an individual who self-identifies as Black, African American, North

African, Middle Eastern, Hispanic, Latino, Asian, Pacific Islander, Native American, Native Hawaiian, or Alaskan

Native, or who self-identifies as gay, lesbian, bisexual, or transgender. For the purposes of this evaluation, we

will rely solely on self-identified demographic information as disclosed in company proxy statements.

Additionally, when making these voting recommendations we will carefully review a company’s disclosure of its

diversity considerations, and may refrain from recommending that shareholders vote against directors when

boards have provided a sufficient rationale or plan to address the lack of diversity on the board, including a

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timeline to appoint additional directors from an underrepresented community (generally by the next annual

meeting).

State Laws on Diversity

We have revised our discussion regarding state laws on diversity following recent changes to the status of

certain state laws. Over the past several years, some U.S. states have encouraged board diversity through

legislation. Most notably, companies headquartered in California were subject to mandatory board composition

requirements during early 2022.

Subsequently, California’s Senate Bill 826 and Assembly Bill 979 regarding board gender and “underrepresented

community” diversity, respectively, were both deemed to violate the equal protection clause of the California

state constitution. These laws are currently in the appeals process.

Accordingly, where we previously recommended in accordance with mandatory board composition

requirements set forth in California’s SB 826 and AB 979, we will refrain from providing recommendations

pursuant to these state board composition requirements until further notice while we continue to monitor the

appeals process. However, we will continue to monitor compliance with these requirements.

Disclosure of Director Diversity and Skills

We have revised our discussion on disclosure of director diversity and skills in company proxy statements. At

companies in the Russell 1000 index that have not provided any disclosure in any of our tracked categories, we

will generally recommend voting against the chair of the nominating and/or governance committee.

Additionally, beginning in 2023, when companies in the Russell 1000 index have not provided any disclosure of

individual or aggregate racial/ethnic minority demographic information, we will generally recommend voting

against the chair of the governance committee.

Board Oversight of Environmental and Social Issues

We have updated our guidelines with respect to board-level oversight of environmental and social (E&S) issues.

For shareholder meetings held after January 1, 2023, we will generally recommend voting against the

governance committee chair of a company in the Russell 1000 index that fails to provide explicit disclosure

concerning the board’s role in overseeing environmental and social issues. While we believe that it is important

that these issues are overseen at the board level and that shareholders are afforded meaningful disclosure of

these oversight responsibilities, we believe that companies should determine the best structure for this

oversight. In our view, this oversight can be effectively conducted by specific directors, the entire board, a

separate committee, or combined with the responsibilities of a key committee. Furthermore, beginning in 2023

we will expand our tracking of board-level oversight of environmental and social issues to all companies within

the Russell 3000 index.

When evaluating a board’s role in overseeing environmental and social issues, we will examine a company’s

proxy statement and governing documents (such as committee charters) to determine if directors maintain a

meaningful level of oversight and accountability for a company’s material environmental and social risks.

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Director Commitments

We have revised our discussion of director commitments. We have clarified that we will generally recommend

that shareholders vote against a director who serves as an executive officer (other than executive chair) of any

public company while serving on more than one external public company board, a director who serves as an

executive chair of any public company while serving on more than two external public company boards, and any

other director who serves on more than five public company boards.

Cyber Risk Oversight

We have included a new discussion on our approach to cyber risk oversight. Given current regulatory focus on

and the potential adverse outcomes from cyber-related issues, it is our view that cyber risk is material for all

companies. We, therefore, believe that it is critical that companies evaluate and mitigate these risks to the

greatest extent possible. With that view, we encourage all issuers to provide clear disclosure concerning the role

of the board in overseeing issues related to cybersecurity. We also believe that disclosure concerning how

companies are ensuring directors are fully versed on this rapidly evolving and dynamic issue can help

shareholders understand the seriousness with which companies take this issue.

We will generally not make recommendations on the basis of a company’s oversight or disclosure concerning

cyber-related issues. However, we will closely evaluate a company’s disclosure in this regard in instances where

cyber-attacks have caused significant harm to shareholders and may recommend against appropriate directors

should we find such disclosure or oversight to be insufficient.

Board Accountability for Climate-related Issues

We have included a new discussion on director accountability for climate-related issues. In particular, we believe

that clear and comprehensive disclosure regarding climate risks, including how they are being mitigated and

overseen, should be provided by those companies whose own GHG emissions represent a financially material

risk, such as those companies identified by groups including Climate Action 100+.

Accordingly, for companies with material exposure to climate risk stemming from their own operations, we

believe they should provide thorough climate-related disclosures in line with the recommendations of the Task

Force on Climate-related Financial Disclosures (“TCFD”). We also believe the boards of these companies should

have explicit and clearly defined oversight responsibilities for climate-related issues. As such, in instances where

we find either of these disclosures to be absent or significantly lacking, we may recommend voting against

responsible directors.

Officer Exculpation

We have included a new section regarding officer exculpation. In August 2022, the Delaware General Assembly

amended Section 102(b)(7) of the Delaware General Corporation Law (“DGCL”) to authorize corporations to

adopt a provision in their certificate of incorporation to eliminate or limit monetary liability of certain corporate

officers for breach of fiduciary duty of care. The amendment authorizes corporations to provide for exculpation

of the following officers: (i) the corporation’s president, chief executive officer, chief operating officer, chief

financial officer, chief legal officer, controller, treasurer or chief accounting officer, (ii) “named executive

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officers” identified in the corporation’s SEC filings, and (iii) individuals who have agreed to be identified as

officers of the corporation.

Corporate exculpation provisions under the DGCL apply only to claims for breach of the duty of care, and not to

breaches of the duty of loyalty. Exculpation provisions also do not apply to acts or omissions not in good faith or

that involve intentional misconduct, knowing violations of the law, or transactions involving the receipt of any

improper personal benefits. Furthermore, officers may not be exculpated from claims brought against them by,

or in the right of, the corporation (i.e., derivative actions).

Under Section 102(b)(7), a corporation must affirmatively elect to include an exculpation provision in its

certificate of incorporation. We will closely evaluate proposals to adopt officer exculpation provisions on a case-

by-case basis. We will generally recommend voting against such proposals eliminating monetary liability for

breaches of the duty of care for certain corporate officers, unless compelling rationale for the adoption is

provided by the board, and the provisions are reasonable.

Long-Term Incentives

We revised our threshold for the minimum percentage of the long-term incentive grant that should be

performance-based from 33% to 50%, in line with market trends. Beginning in 2023, Glass Lewis will raise

concerns in our analysis with executive pay programs that provide less than half of an executive’s long-term

incentive awards that are subject to performance-based vesting conditions. As with past year, we may refrain

from a negative recommendation in the absence of other significant issues with the program’s design or

operation, but a negative trajectory in the allocation amount may lead to an unfavorable recommendation.

Clarifying Amendments

The following clarifications of our existing policies are included this year:

Board Responsiveness

We have clarified our discussion of board responsiveness. Specifically, we have clarified that when 20% or more

of shareholders vote contrary to management, we believe that boards should engage with shareholders and

demonstrate some initial level of responsiveness. When a majority or more of shareholders vote contrary to

management, we believe that boards should engage with shareholders and provide a more robust response to

fully address shareholder concerns. Furthermore, we have clarified our approach at controlled companies and

companies that have multi-class share structures with unequal voting rights, where we will carefully examine

the level of disapproval attributable to unaffiliated shareholders and will generally evaluate vote results on a

“one share, one vote” basis.

Compensation Committee Performance

We have clarified our approach when certain outsized awards (so called “mega-grants”) have been granted and

the awards present concerns such as excessive quantum, lack of sufficient performance conditions, and/or are

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excessively dilutive, among others. We will generally recommend against the chair of the compensation

committee when such outsized awards have been granted and include any of the aforementioned concerns.

Company Responsiveness (for Say-on-Pay Analysis)

With regard to our discussion of company responsiveness, we have clarified that we will also scrutinize high

levels of disapproval from disinterested shareholders when assessing the support levels for previous years' say-

on-pay votes. When evaluating a company's response to low support levels, we also expanded our discussion of

what we consider robust disclosure, including discussion of rationale for not implementing change to pay

decisions that drove low support and intentions going forward.

One-Time Awards

We have expanded our discussion regarding what we consider reasonable disclosure in terms of one-time

awards. Specifically, we have included that we expect discussion surrounding the determination of quantum and

structure for such awards.

Grants of Front-Loaded Awards

Adding to our discussion relating to front-loaded awards, we have included language touching on the topic of

the rise in the use of "mega-grants". Furthermore, we expanded on our concerns regarding the increased

restraint placed upon the board to respond to unforeseen factors when front-loaded awards are used. Finally,

we provided clarification surrounding situations where front-loaded awards are intended to cover only the time-

based or performance-based portion of an executive's long-term incentive awards.

Pay for Performance

We included mention of the new pay versus performance disclosure requirements announced by the U.S.

Securities and Exchange Commission (SEC) in August of 2022. In our revised discussion of our Pay-for-

Performance methodology, we have made clear that the methodology is not impacted by new rules. There is no

change to the methodology for the 2023 Proxy Season. However, we note that the disclosure requirements from

the new rule may be reviewed in our evaluation of executive pay programs on a qualitative basis.

Short- and Long-Term Incentives

We have added new discussion to codify our views on certain exercise of compensation committee discretion on

incentive payouts. Glass Lewis recognizes the importance of the compensation committee’s judicious and

responsible exercise of discretion over incentive pay outcomes to account for significant events that would

otherwise be excluded from performance results of selected metrics of incentive programs. We believe that

companies should provide thorough discussion of how such events were considered in the committee’s

decisions to exercise discretion or refrain from applying discretion over incentive pay outcomes.

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Recoupment Provisions

We have revised our discussion on clawback policies to reflect new regulatory developments for exchange-listed

companies. On October 26, 2022, the U.S. Securities and Exchange Commission (SEC) approved final rules

regarding clawback policies based on which the national exchanges are to create new listing requirements.

During period between the announcement of the final rules and the effective date of listing requirements, Glass

Lewis will continue to raise concerns for companies that maintain clawback policies that only meet the

requirements set forth by Section 304 of the Sarbanes-Oxley Act. However, disclosure from such companies of

early effort to meet the standards of the final rules may help to mitigate concerns.

A Board of Directors that Serves

Shareholder Interest

Election of Directors

The purpose of Glass Lewis’ proxy research and advice is to facilitate shareholder voting in favor of governance

structures that will drive performance, create shareholder value and maintain a proper tone at the top. Glass

Lewis looks for talented boards with a record of protecting shareholders and delivering value over the medium-

and long-term. We believe that a board can best protect and enhance the interests of shareholders if it is

sufficiently independent, has a record of positive performance, and consists of individuals with diverse

backgrounds and a breadth and depth of relevant experience.

Independence

The independence of directors, or lack thereof, is ultimately demonstrated through the decisions they make. In

assessing the independence of directors, we will take into consideration, when appropriate, whether a director

has a track record indicative of making objective decisions. Likewise, when assessing the independence of

directors we will also examine when a director’s track record on multiple boards indicates a lack of objective

decision-making. Ultimately, we believe the determination of whether a director is independent or not must

take into consideration both compliance with the applicable independence listing requirements as well as

judgments made by the director.

We look at each director nominee to examine the director’s relationships with the company, the company’s

executives, and other directors. We do this to evaluate whether personal, familial, or financial relationships (not

including director compensation) may impact the director’s decisions. We believe that such relationships make it

difficult for a director to put shareholders’ interests above the director’s or the related party’s interests. We also

believe that a director who owns more than 20% of a company can exert disproportionate influence on the

board, and therefore believe such a director’s independence may be hampered, in particular when serving on

the audit committee.

Thus, we put directors into three categories based on an examination of the type of relationship they have with

the company:

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Independent Director — An independent director has no material financial, familial or other current

relationships with the company, its executives, or other board members, except for board service and

standard fees paid for that service. Relationships that existed within three to five years

before the

inquiry are usually considered “current” for purposes of this test. For material financial relationships

with the company, we apply a three-year look back, and for former employment relationships with the

company, we apply a five-year look back.

Affiliated Director — An affiliated director has, (or within the past three years, had) a material financial,

familial or other relationship with the company or its executives, but is not an employee of the

company.

This includes directors whose employers have a material financial relationship with the

company.

In addition, we view a director who either owns or controls 20% or more of the company’s

voting stock, or is an employee or affiliate of an entity that controls such amount, as an affiliate.

We view 20% shareholders as affiliates because they typically have access to and involvement with the

management of a company that is fundamentally different from that of ordinary shareholders. More

importantly, 20% holders may have interests that diverge from those of ordinary holders, for reasons such as

the liquidity (or lack thereof) of their holdings, personal tax issues, etc.

Glass Lewis applies a three-year look back period to all directors who have an affiliation with the company other

than former employment, for which we apply a five-year look back.

Definition of “Material”: A material relationship is one in which the dollar value exceeds:

• $50,000 (or where no amount is disclosed) for directors who are paid for a service they have agreed

to perform for the company, outside of their service as a director, including professional or other

services. This threshold also applies to directors who are the majority or principal owner of a firm that

receives such payments; or

• $120,000 (or where no amount is disclosed) for those directors employed by a professional services firm

such as a law firm, investment bank, or consulting firm and the company pays the firm, not the

NASDAQ originally proposed a five-year look-back period but both it and the NYSE ultimately settled on a three-year look-

back prior to finalizing their rules. A five-year standard for former employment relationships is more appropriate, in our

view, because we believe that the unwinding of conflicting relationships between former management and board members

is more likely to be complete and final after five years. However, Glass Lewis does not apply the five-year look-back period

to directors who have previously served as executives of the company on an interim basis for less than one year.

If a company does not consider a non-employee director to be independent, Glass Lewis will classify that director as an

affiliate.

We allow a five-year grace period for former executives of the company or merged companies who have consulting

agreements with the surviving company. (We do not automatically recommend voting against directors in such cases for

the first five years.) If the consulting agreement persists after

this five-year grace period, we apply the materiality thresholds outlined in the definition of “material.”

This includes a director who serves on a board as a representative (as part of his or her basic responsibilities) of an

investment firm with greater than 20% ownership. However, while we will generally consider him/her to be affiliated, we

will not recommend voting against unless (i) the investment firm has disproportionate board representation or (ii) the

director serves on the audit committee.

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individual, for services.

This dollar limit would also apply to charitable contributions to schools where a

board member is a professor; or charities where a director serves on the board or is an executive;

and

any aircraft and real estate dealings between the company and the director’s firm; or

• 1% of either company’s consolidated gross revenue for other business relationships (e.g., where the

director is an executive officer of a company that provides services or products to or receives services or

products from the company).

Definition of “Familial” — Familial relationships include a person’s spouse, parents, children, siblings,

grandparents, uncles, aunts, cousins, nieces, nephews, in-laws, and anyone (other than domestic employees)

who shares such person’s home. A director is an affiliate if: i) he or she has a family member who is employed by

the company and receives more than $120,000

in annual compensation; or, ii) he or she has a family member

who is employed by the company and the company does not disclose this individual’s compensation.

Definition of “Company” — A company includes any parent or subsidiary in a group with the company or any

entity that merged with, was acquired by, or acquired the company.

Inside Director — An inside director simultaneously serves as a director and as an employee of the

company. This category may include a board chair who acts as an employee of the company or is paid as

an employee of the company. In our view, an inside director who derives a greater amount of income as

a result of affiliated transactions with the company rather than through compensation paid by the

company (i.e., salary, bonus, etc. as a company employee) faces a conflict between making decisions

that are in the best interests of the company versus those in the director’s own best interests.

Therefore, we will recommend voting against such a director.

Additionally, we believe a director who is currently serving in an interim management position should be

considered an insider, while a director who previously served in an interim management position for less than

one year and is no longer serving in such capacity is considered independent. Moreover, a director who

previously served in an interim management position for over one year and is no longer serving in such capacity

is considered an affiliate for five years following the date of the director’s resignation or departure from the

interim management position.

We may deem such a transaction to be immaterial where the amount represents less than 1% of the firm’s annual

revenues and the board provides a compelling rationale as to why the director’s independence is not affected by the

relationship.

We will generally take into consideration the size and nature of such charitable entities in relation to the company’s size

and industry along with any other relevant factors such as the director’s role at the charity. However, unlike for other types

of related party transactions, Glass Lewis generally does not apply a look-back period to affiliated relationships involving

charitable contributions; if the relationship between the director and the school or charity ceases, or if the company

discontinues its donations to the entity, we will consider the director to be independent.

This includes cases where a director is employed by, or closely affiliated with, a private equity firm that profits from an

acquisition made by the company. Unless disclosure suggests otherwise, we presume the director is affiliated.

Pursuant to SEC rule Item 404 of Regulation S-K under the Securities Exchange Act, compensation exceeding $120,000 is

the minimum threshold deemed material for disclosure of transactions involving family members of directors.

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Voting Recommendations on the Basis of Board Independence

Glass Lewis believes a board will be most effective in protecting shareholders’ interests if it is at least two-thirds

independent. We note that each of the Business Roundtable, the Conference Board, and the Council of

Institutional Investors advocates that two-thirds of the board be independent. Where more than one-third of

the members are affiliated or inside directors, we typically

recommend voting against some of the inside and/or

affiliated directors in order to satisfy the two-thirds threshold.

In the case of a less than two-thirds independent board, Glass Lewis strongly supports the existence of a

presiding or lead director with authority to set the meeting agendas and to lead sessions outside the insider

chair’s presence.

In addition, we scrutinize avowedly “independent” chairs and lead directors. We believe that they should be

unquestionably independent or the company should not tout them as such.

Committee Independence

We believe that only independent directors should serve on a company’s audit, compensation, nominating, and

governance committees.

We typically recommend that shareholders vote against any affiliated or inside

director seeking appointment to an audit, compensation, nominating, or governance committee, or who has

served in that capacity in the past year.

Pursuant to Section 952 of the Dodd-Frank Act, as of January 11, 2013, the U.S. Securities and Exchange

Commission (SEC) approved new listing requirements for both the NYSE and NASDAQ which require that boards

apply enhanced standards of independence when making an affirmative determination of the independence of

compensation committee members. Specifically, when making this determination, in addition to the factors

considered when assessing general director independence, the board’s considerations must include: (i) the

source of compensation of the director, including any consulting, advisory or other compensatory fee paid by

the listed company to the director (the “Fees Factor”); and (ii) whether the director is affiliated with the listing

company, its subsidiaries, or affiliates of its subsidiaries (the “Affiliation Factor”).

Glass Lewis believes it is important for boards to consider these enhanced independence factors when assessing

compensation committee members. However, as discussed above in the section titled Independence, we apply

our own standards when assessing the independence of directors, and these standards also take into account

consulting and advisory fees paid to the director, as well as the director’s affiliations with the company and its

subsidiaries and affiliates. We may recommend voting against compensation committee members who are not

independent based on our standards.

With a staggered board, if the affiliates or insiders that we believe should not be on the board are not up for election, we

will express our concern regarding those directors, but we will not recommend voting against the other affiliates or insiders

who are up for election just to achieve two-thirds independence. However, we will consider recommending voting against

the directors subject to our concern at their next election if the issue giving rise to the concern is not resolved.

We will recommend voting against an audit committee member who owns 20% or more of the company’s stock, and we

believe that there should be a maximum of one director (or no directors if the committee is composed of less than three

directors) who owns 20% or more of the company’s stock on the compensation, nominating, and governance committees.

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Independent Chair

Glass Lewis believes that separating the roles of CEO (or, more rarely, another executive position) and chair

creates a better governance structure than a combined CEO/chair position. An executive manages the business

according to a course the board charts. Executives should report to the board regarding their performance in

achieving goals set by the board. This is needlessly complicated when a CEO chairs the board, since a CEO/chair

presumably will have a significant influence over the board.

While many companies have an independent lead or presiding director who performs many of the same

functions of an independent chair (e.g., setting the board meeting agenda), we do not believe this alternate

form of independent board leadership provides as robust protection for shareholders as an independent chair.

It can become difficult for a board to fulfill its role of overseer and policy setter when a CEO/chair controls the

agenda and the boardroom discussion. Such control can allow a CEO to have an entrenched position, leading to

longer-than-optimal terms, fewer checks on management, less scrutiny of the business operation, and

limitations on independent, shareholder-focused goal-setting by the board.

A CEO should set the strategic course for the company, with the board’s approval, and the board should enable

the CEO to carry out the CEO’s vision for accomplishing the board’s objectives. Failure to achieve the board’s

objectives should lead the board to replace that CEO with someone in whom the board has confidence.

Likewise, an independent chair can better oversee executives and set a pro-shareholder agenda without the

management conflicts that a CEO and other executive insiders often face. Such oversight and concern for

shareholders allows for a more proactive and effective board of directors that is better able to look out for the

interests of shareholders.

Further, it is the board’s responsibility to select a chief executive who can best serve a company and its

shareholders and to replace this person when his or her duties have not been appropriately fulfilled. Such a

replacement becomes more difficult and happens less frequently when the chief executive is also in the position

of overseeing the board.

Glass Lewis believes that the installation of an independent chair is almost always a positive step from a

corporate governance perspective and promotes the best interests of shareholders. Further, the presence of an

independent chair fosters the creation of a thoughtful and dynamic board, not dominated by the views of senior

management. Encouragingly, many companies appear to be moving in this direction — one study indicates that

only 10 percent of incoming CEOs in 2014 were awarded the chair title, versus 48 percent in 2002.

Another

study finds that 53 percent of S&P 500 boards now separate the CEO and chair roles, up from 37 percent in

2009, although the same study found that only 34 percent of S&P 500 boards have truly independent chairs.

We do not recommend that shareholders vote against CEOs who chair the board. However, we typically

recommend that our clients support separating the roles of chair and CEO whenever that question is posed in a

Ken Favaro, Per-Ola Karlsson and Gary L. Nelson. “The $112 Billion CEO Succession Problem.” (Strategy+Business, Issue

79, Summer 2015).

Spencer Stuart Board Index, 2019, p. 6.

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proxy (typically in the form of a shareholder proposal), as we believe that it is in the long-term best interests of

the company and its shareholders.

Further, where the company has neither an independent chair nor independent lead director, we will

recommend voting against the chair of the governance committee.

Performance

The most crucial test of a board’s commitment to the company and its shareholders lies in the actions of the

board and its members. We look at the performance of these individuals as directors and executives of the

company and of other companies where they have served.

We find that a director’s past conduct is often indicative of future conduct and performance. We often find

directors with a history of overpaying executives or of serving on boards where avoidable disasters have

occurred serving on the boards of companies with similar problems. Glass Lewis has a proprietary database of

directors serving at over 8,000 of the most widely held U.S. companies. We use this database to track the

performance of directors across companies.

Voting Recommendations on the Basis of Performance

We typically recommend that shareholders vote against directors who have served on boards or as executives of

companies with records of poor performance, inadequate risk oversight, excessive compensation, audit- or

accounting-related issues, and/or other indicators of mismanagement or actions against the interests of

shareholders. We will reevaluate such directors based on, among other factors, the length of time passed since

the incident giving rise to the concern, shareholder support for the director, the severity of the issue, the

director’s role (e.g., committee membership), director tenure at the subject company, whether ethical lapses

accompanied the oversight lapse, and evidence of strong oversight at other companies.

Likewise, we examine the backgrounds of those who serve on key board committees to ensure that they have

the required skills and diverse backgrounds to make informed judgments about the subject matter for which the

committee is responsible.

We believe shareholders should avoid electing directors who have a record of not fulfilling their responsibilities

to shareholders at any company where they have held a board or executive position. We typically recommend

voting against:

1. A director who fails to attend a minimum of 75% of board and applicable committee meetings,

calculated in the aggregate.

2. A director who belatedly filed a significant form(s) 4 or 5, or who has a pattern of late filings if the late

filing was the director’s fault (we look at these late filing situations on a case-by-case basis).

3. A director who is also the CEO of a company where a serious and material restatement has occurred

after the CEO had previously certified the pre-restatement financial statements.

However, where a director has served for less than one full year, we will typically not recommend voting against for

failure to attend 75% of meetings. Rather, we will note the poor attendance with a recommendation to track this issue

going forward. We will also refrain from recommending to vote against directors when the proxy discloses that the director

missed the meetings due to serious illness or other extenuating circumstances.

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4. A director who has received two against recommendations from Glass Lewis for identical reasons within

the prior year at different companies (the same situation must also apply at the company being

analyzed).

Furthermore, with consideration given to the company’s overall corporate governance, pay-for-performance

alignment and board responsiveness to shareholders, we may recommend voting against directors who served

throughout a period in which the company performed significantly worse than peers and the directors have not

taken reasonable steps to address the poor performance.

Board Responsiveness

Glass Lewis believes that boards should be responsive to shareholders when a significant percentage of

shareholders vote contrary to the recommendation of management, depending on the issue.

When 20% of more of shareholders vote contrary to management, we believe that boards should engage with

shareholders on the issue and demonstrate some initial level of responsiveness. These include instances when

20% or more of shareholders:

(i) withhold votes from (or vote against) a director nominee;

(ii) vote against a management-sponsored proposal; or

(iii) vote for a shareholder proposal.

In our view, a 20% threshold is significant enough to warrant a close examination of the underlying issues and an

evaluation of whether the board responded appropriately following the vote, particularly in the case of a

compensation or director election proposal. While the 20% threshold alone will not automatically generate a

negative vote recommendation from Glass Lewis on a future proposal (e.g., to recommend against a director

nominee, against a say-on-pay proposal, etc.), it may be a contributing factor to our recommendation to vote

against management’s recommendation in the event we determine that the board did not respond

appropriately.

When a majority of shareholders vote contrary to management, we believe that boards should engage with

shareholders on the issue and provide a more robust response to fully address shareholder concerns. These

include instances when a majority or more of shareholders:

(i) withhold votes from (or vote against) a director nominee;

(ii) vote against a management-sponsored proposal; or

(iii) vote for a shareholder proposal.

In the case of shareholder proposals, we believe clear action is warranted when such proposals receive support

from a majority of votes cast (excluding abstentions and broker non-votes). In our view, this may include fully

implementing the request of the shareholder proposal and/or engaging with shareholders on the issue and

providing sufficient disclosures to address shareholder concerns.

At controlled companies and companies that have multi-class share structures with unequal voting rights, we

will carefully examine the level of approval or disapproval attributed to unaffiliated shareholders when

determining whether board responsiveness is warranted. In the case of companies that have multi-class share

structures with unequal voting rights, we will generally examine the level of approval or disapproval attributed

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to unaffiliated shareholders on a “one share, one vote” basis. At controlled and multi-class companies, when at

least 20% or more of unaffiliated shareholders vote contrary to management, we believe that boards should

engage with shareholders and demonstrate some initial level of responsiveness, and when a majority or more of

unaffiliated shareholders vote contrary to management, we believe that boards should engage with

shareholders and provide a more robust response to address shareholder concerns.

As a general framework, our evaluation of board responsiveness involves a review of publicly available

disclosures (e.g., the proxy statement, annual report, 8-Ks, company website, etc.) released following the date of

the company’s last annual meeting up through the publication date of our most current Proxy Paper. Depending

on the specific issue, our focus typically includes, but is not limited to, the following:

• At the board level, any changes in directorships, committee memberships, disclosure of related party

transactions, meeting attendance, or other responsibilities;

• Any revisions made to the company’s articles of incorporation, bylaws or other governance documents;

• Any press or news releases indicating changes in, or the adoption of, new company policies, business

practices or special reports; and

• Any modifications made to the design and structure of the company’s compensation program, as well as

an assessment of the company’s engagement with shareholders on compensation issues as discussed in

the Compensation Discussion & Analysis (CD&A), particularly following a material vote against a

company’s say-on-pay.

• Proxy statement disclosure discussing the board’s efforts to engage with shareholders and the actions

taken to address shareholder concerns.

Our Proxy Paper analysis will include a case-by-case assessment of the specific elements of board

responsiveness that we examined along with an explanation of how that assessment impacts our current voting

recommendations.

The Role of a Committee Chair

Glass Lewis believes that a designated committee chair maintains primary responsibility for the actions of his or

her respective committee. As such, many of our committee-specific voting recommendations are against the

applicable committee chair rather than the entire committee (depending on the seriousness of the issue). In

cases where the committee chair is not up for election due to a staggered board, and where we have identified

multiple concerns, we will generally recommend voting against other members of the committee who are up for

election, on a case-by-case basis.

In cases where we would ordinarily recommend voting against a committee chair but the chair is not specified,

we apply the following general rules, which apply throughout our guidelines:

• If there is no committee chair, we recommend voting against the longest-serving committee member or,

if the longest-serving committee member cannot be determined, the longest-serving board member

serving on the committee (i.e., in either case, the “senior director”); and

• If there is no committee chair, but multiple senior directors serving on the committee, we recommend

voting against both (or all) such senior directors.

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In our view, companies should provide clear disclosure of which director is charged with overseeing each

committee. In cases where that simple framework is ignored and a reasonable analysis cannot determine which

committee member is the designated leader, we believe shareholder action against the longest serving

committee member(s) is warranted. Again, this only applies if we would ordinarily recommend voting against

the committee chair but there is either no such position or no designated director in such role.

Audit Committees and Performance

Audit committees play an integral role in overseeing the financial reporting process because stable capital

markets depend on reliable, transparent, and objective financial information to support an efficient and

effective capital market process. Audit committees play a vital role in providing this disclosure to shareholders.

When assessing an audit committee’s performance, we are aware that an audit committee does not prepare

financial statements, is not responsible for making the key judgments and assumptions that affect the financial

statements, and does not audit the numbers or the disclosures provided to investors. Rather, an audit

committee member monitors and oversees the process and procedures that management and auditors

perform. The 1999 Report and Recommendations of the Blue Ribbon Committee on Improving the Effectiveness

of Corporate Audit Committees stated it best:

A proper and well-functioning system exists, therefore, when the three main groups responsible for

financial reporting — the full board including the audit committee, financial management including the

internal auditors, and the outside auditors — form a ‘three legged stool’ that supports responsible

financial disclosure and active participatory oversight. However, in the view of the Committee, the audit

committee must be ‘first among equals’ in this process, since the audit committee is an extension of the

full board and hence the ultimate monitor of the process.

Standards for Assessing the Audit Committee

For an audit committee to function effectively on investors’ behalf, it must include members with sufficient

knowledge to diligently carry out their responsibilities. In its audit and accounting recommendations, the

Conference Board Commission on Public Trust and Private Enterprise said “members of the audit committee

must be independent and have both knowledge and experience in auditing financial matters.”

We are skeptical of audit committees where there are members that lack expertise as a Certified Public

Accountant (CPA), Chief Financial Officer (CFO) or corporate controller, or similar experience. While we will not

necessarily recommend voting against members of an audit committee when such expertise is lacking, we are

more likely to recommend voting against committee members when a problem such as a restatement occurs

and such expertise is lacking.

Glass Lewis generally assesses audit committees against the decisions they make with respect to their oversight

and monitoring role. The quality and integrity of the financial statements and earnings reports, the

completeness of disclosures necessary for investors to make informed decisions, and the effectiveness of the

internal controls should provide reasonable assurance that the financial statements are materially free from

Commission on Public Trust and Private Enterprise. The Conference Board. 2003.

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errors. The independence of the external auditors and the results of their work all provide useful information by

which to assess the audit committee.

When assessing the decisions and actions of the audit committee, we typically defer to its judgment and

generally recommend voting in favor of its members. However, we will consider recommending that

shareholders vote against the following:

1. All members of the audit committee when options were backdated, there is a lack of adequate controls

in place, there was a resulting restatement, and disclosures indicate there was a lack of documentation

with respect to the option grants.

2. The audit committee chair, if the audit committee does not have a financial expert or the committee’s

financial expert does not have a demonstrable financial background sufficient to understand the

financial issues unique to public companies.

3. The audit committee chair, if the audit committee did not meet at least four times during the year.

4. The audit committee chair, if the committee has less than three members.

5. Any audit committee member who sits on more than three public company audit committees, unless

the audit committee member is a retired CPA, CFO, controller or has similar experience, in which case

the limit shall be four committees, taking time and availability into consideration including a review of

the audit committee member’s attendance at all board and committee meetings.

6. All members of an audit committee who are up for election and who served on the committee at the

time of the audit, if audit and audit-related fees total one-third or less of the total fees billed by the

auditor.

7. The audit committee chair when tax and/or other fees are greater than audit and audit-related fees paid

to the auditor for more than one year in a row (in which case we also recommend against ratification of

the auditor).

8. The audit committee chair when fees paid to the auditor are not disclosed.

9. All members of an audit committee where non-audit fees include fees for tax services (including, but not

limited to, such things as tax avoidance or shelter schemes) for senior executives of the company. Such

services are prohibited by the Public Company Accounting Oversight Board (PCAOB).

10. All members of an audit committee that reappointed an auditor that we no longer consider to be

independent for reasons unrelated to fee proportions.

11. All members of an audit committee when audit fees are excessively low, especially when compared with

other companies in the same industry.

12. The audit committee chair if the committee failed to put auditor ratification on the ballot for

shareholder approval. However, if the non-audit fees or tax fees exceed audit plus audit-related fees in

either the current or the prior year, then Glass Lewis will recommend voting against the entire audit

committee.

Glass Lewis may exempt certain audit committee members from the above threshold if, upon further analysis of relevant

factors such as the director’s experience, the size, industry-mix and location of the companies involved and the director’s

attendance at all the companies, we can reasonably determine that the audit committee member is likely not hindered by

multiple audit committee commitments.

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13. All members of an audit committee where the auditor has resigned and reported that a section 10A

letter has been issued.

14. All members of an audit committee at a time when material accounting fraud occurred at the

company.

15. All members of an audit committee at a time when annual and/or multiple quarterly financial

statements had to be restated, and any of the following factors apply:

a. The restatement involves fraud or manipulation by insiders;

b. The restatement is accompanied by an SEC inquiry or investigation;

c. The restatement involves revenue recognition;

d. The restatement results in a greater than 5% adjustment to costs of goods sold, operating

expense, or operating cash flows; or

e. The restatement results in a greater than 5% adjustment to net income, 10% adjustment to

assets or shareholders equity, or cash flows from financing or investing activities.

16. All members of an audit committee if the company repeatedly fails to file its financial reports in a timely

fashion. For example, the company has filed two or more quarterly or annual financial statements late

within the last five quarters.

17. All members of an audit committee when it has been disclosed that a law enforcement agency

has charged the company and/or its employees with a violation of the Foreign Corrupt Practices

Act (FCPA).

18. All members of an audit committee when the company has aggressive accounting policies and/or poor

disclosure or lack of sufficient transparency in its financial statements.

19. All members of the audit committee when there is a disagreement with the auditor and the auditor

resigns or is dismissed (e.g., the company receives an adverse opinion on its financial statements from

the auditor).

20. All members of the audit committee if the contract with the auditor specifically limits the auditor’s

liability to the company for damages.

21. All members of the audit committee who served since the date of the company’s last annual meeting,

and when, since the last annual meeting, the company has reported a material weakness that has not

Auditors are required to report all potential illegal acts to management and the audit committee unless they are clearly

inconsequential in nature. If the audit committee or the board fails to take appropriate action on an act that has been

determined to be a violation of the law, the independent auditor is required to send a section 10A letter to the SEC. Such

letters are rare and therefore we believe should be taken seriously.

Research indicates that revenue fraud now accounts for over 60% of SEC fraud cases, and that companies that engage in

fraud experience significant negative abnormal stock price declines—facing bankruptcy, delisting, and material asset sales

at much higher rates than do non-fraud firms (Committee of Sponsoring Organizations of the Treadway Commission.

“Fraudulent Financial Reporting: 1998-2007.” May 2010).

The SEC issued guidance in March 2021 related to classification of warrants as liabilities at special purpose acquisition

companies (SPACs). We will generally refrain from recommending against audit committee members when the restatement

in question is solely as a result of the aforementioned SEC guidance.

The Council of Institutional Investors. “Corporate Governance Policies,” p. 4, April 5, 2006; and “Letter from Council of

Institutional Investors to the AICPA,” November 8, 2006.

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yet been corrected, or, when the company has an ongoing material weakness from a prior year that has

not yet been corrected.

We also take a dim view of audit committee reports that are boilerplate, and which provide little or no

information or transparency to investors. When a problem such as a material weakness, restatement or late

filings occurs, we take into consideration, in forming our judgment with respect to the audit committee, the

transparency of the audit committee report.

Compensation Committee Performance

Compensation committees have a critical role in determining the compensation of executives. This includes

deciding the basis on which compensation is determined, as well as the amounts and types of compensation

to be paid. This process begins with the hiring and initial establishment of employment agreements, including

the terms for such items as pay, pensions and severance arrangements. It is important in establishing

compensation arrangements that compensation be consistent with, and based on the long-term economic

performance of, the business’s long-term shareholders returns.

Compensation committees are also responsible for the oversight of the transparency of compensation. This

oversight includes disclosure of compensation arrangements, the matrix used in assessing pay for performance,

and the use of compensation consultants. In order to ensure the independence of the board’s compensation

consultant, we believe the compensation committee should only engage a compensation consultant that is not

also providing any services to the company or management apart from their contract with the compensation

committee. It is important to investors that they have clear and complete disclosure of all the significant terms

of compensation arrangements in order to make informed decisions with respect to the oversight and decisions

of the compensation committee.

Finally, compensation committees are responsible for oversight of internal controls over the executive

compensation process. This includes controls over gathering information used to determine compensation,

establishment of equity award plans, and granting of equity awards. For example, the use of a compensation

consultant who maintains a business relationship with company management may cause the committee to

make decisions based on information that is compromised by the consultant’s conflict of interests. Lax controls

can also contribute to improper awards of compensation such as through granting of backdated or spring-

loaded options, or granting of bonuses when triggers for bonus payments have not been met.

Central to understanding the actions of compensation committee is a careful review of the CD&A report

included in each company’s proxy. We review the CD&A in our evaluation of the overall compensation practices

of a company, as overseen by the compensation committee. The CD&A is also integral to the evaluation of

compensation proposals at companies, such as advisory votes on executive compensation, which allow

shareholders to vote on the compensation paid to a company’s top executives.

When assessing the performance of compensation committees, we will consider recommending that

shareholders vote against the following:

1. All members of a compensation committee during whose tenure the committee failed to address

shareholder concerns following majority shareholder rejection of the say-on-pay proposal in the

previous year. Where the proposal was approved but there was a significant shareholder vote (i.e.,

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greater than 20% of votes cast) against the say-on-pay proposal in the prior year, if the board did not

respond sufficiently to the vote including actively engaging shareholders on this issue, we will also

consider recommending voting against the chair of the compensation committee or all members of the

compensation committee, depending on the severity and history of the compensation problems and the

level of shareholder opposition.

2. All members of the compensation committee who are up for election and served when the company

failed to align pay with performance if shareholders are not provided with an advisory vote on executive

compensation at the annual meeting.

3. Any member of the compensation committee who has served on the compensation committee of at

least two other public companies that have consistently failed to align pay with performance and whose

oversight of compensation at the company in question is suspect.

4. All members of the compensation committee (during the relevant time period) if the company entered

into excessive employment agreements and/or severance agreements.

5. All members of the compensation committee when performance goals were changed (i.e., lowered)

when employees failed or were unlikely to meet original goals, or performance-based compensation

was paid despite goals not being attained.

6. All members of the compensation committee if excessive employee perquisites and benefits

were allowed.

7. The compensation committee chair if the compensation committee did not meet during the year.

8. All members of the compensation committee when the company repriced options or completed a “self

tender offer” without shareholder approval within the past two years.

9. All members of the compensation committee when vesting of in-the-money options is accelerated.

10. All members of the compensation committee when option exercise prices were backdated. Glass Lewis

will recommend voting against an executive director who played a role in and participated in

option backdating.

11. All members of the compensation committee when option exercise prices were spring-loaded or

otherwise timed around the release of material information.

12. All members of the compensation committee when a new employment contract is given to an executive

that does not include a clawback provision and the company had a material restatement, especially if

the restatement was due to fraud.

13. The chair of the compensation committee where the CD&A provides insufficient or unclear information

about performance metrics and goals, where the CD&A indicates that pay is not tied to performance, or

where the compensation committee or management has excessive discretion to alter performance

terms or increase amounts of awards in contravention of previously defined targets.

14. All members of the compensation committee during whose tenure the committee failed to implement a

shareholder proposal regarding a compensation-related issue, where the proposal received the

affirmative vote of a majority of the voting shares at a shareholder meeting, and when a reasonable

If a company provides shareholders with a say-on-pay proposal, we will initially only recommend voting against the

company's say-on-pay proposal and will not recommend voting against the members of the compensation committee

unless there is a pattern of failing to align pay and performance and/or the company exhibits egregious compensation

practices. For cases in which the disconnect between pay and performance is marginal and the company has outperformed

its peers, we will consider not recommending against compensation committee members.

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analysis suggests that the compensation committee (rather than the governance committee) should

have taken steps to implement the request.

15. All members of the compensation committee when the board has materially decreased proxy statement

disclosure regarding executive compensation policies and procedures in a manner which substantially

impacts shareholders’ ability to make an informed assessment of the company’s executive pay practices.

16. All members of the compensation committee when new excise tax gross-up provisions are adopted in

employment agreements with executives, particularly in cases where the company previously

committed not to provide any such entitlements in the future.

17. All members of the compensation committee when the board adopts a frequency for future advisory

votes on executive compensation that differs from the frequency approved by shareholders.

18. The chair of the compensation committee when” mega-grants” have been granted and the awards

present concerns such as excessive quantum, lack of sufficient performance conditions, and/or are

excessively dilutive, among others.

Nominating and Governance Committee Performance

The nominating and governance committee is responsible for the governance by the board of the company and

its executives. In performing this role, the committee is responsible and accountable for selection of objective

and competent board members. It is also responsible for providing leadership on governance policies adopted

by the company, such as decisions to implement shareholder proposals that have received a majority vote. At

most companies, a single committee is charged with these oversight functions; at others, the governance and

nominating responsibilities are apportioned among two separate committees.

Consistent with Glass Lewis’ philosophy that boards should have diverse backgrounds and members with a

breadth and depth of relevant experience, we believe that nominating and governance committees should

consider diversity when making director nominations within the context of each specific company and its

industry. In our view, shareholders are best served when boards make an effort to ensure a constituency that is

not only reasonably diverse on the basis of age, race, gender and ethnicity, but also on the basis of geographic

knowledge, industry experience, board tenure and culture.

Regarding the committee responsible for governance, we will consider recommending that shareholders vote

against the following:

1. All members of the governance committee

during whose tenure a shareholder proposal relating to

important shareholder rights received support from a majority of the votes cast (excluding abstentions

and broker non-votes) and the board has not begun to implement or enact the proposal’s subject

In all other instances (i.e., a non-compensation-related shareholder proposal should have been implemented) we

recommend that shareholders vote against the members of the governance committee.

If the board does not have a committee responsible for governance oversight and the board did not implement a

shareholder proposal that received the requisite support, we will recommend voting against the entire board. If the

shareholder proposal at issue requested that the board adopt a declassified structure, we will recommend voting against all

director nominees up for election.

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matter.

Examples of such shareholder proposals include those seeking a declassified board structure, a

majority vote standard for director elections, or a right to call a special meeting. In determining whether

a board has sufficiently implemented such a proposal, we will examine the quality of the right enacted

or proffered by the board for any conditions that may unreasonably interfere with the shareholders’

ability to exercise the right (e.g., overly restrictive procedural requirements for calling a special

meeting).

2. All members of the governance committee when a shareholder resolution is excluded from the meeting

agenda but the SEC has declined to state a view on whether such resolution should be excluded, or

when the SEC has verbally permitted a company to exclude a shareholder proposal but there is no

written record provided by the SEC about such determination and the company has not provided any

disclosure concerning this no-action relief.

3. The governance committee chair when the chair is not independent and an independent lead or

presiding director has not been appointed.

4. The governance committee chair at companies with a multi-class share structure and unequal voting

rights when the company does not provide for a reasonable sunset of the multi-class share structure

(generally seven years or less).

5. In the absence of a nominating committee, the governance committee chair when there are fewer than

five, or the whole governance committee when there are more than 20 members on the board.

6. The governance committee chair when the committee fails to meet at all during the year.

7. The governance committee chair, when for two consecutive years the company provides what we

consider to be “inadequate” related party transaction disclosure (i.e., the nature of such transactions

and/or the monetary amounts involved are unclear or excessively vague, thereby preventing a share-

holder from being able to reasonably interpret the independence status of multiple directors above and

beyond what the company maintains is compliant with SEC or applicable stock exchange listing

requirements).

8. The governance committee chair, when during the past year the board adopted a forum selection clause

(i.e., an exclusive forum provision)

designating either a state's courts for intra-corporate disputes,

and/or federal courts for matters arising under the Securities Act of 1933 without shareholder

Where a compensation-related shareholder proposal should have been implemented, and when a reasonable analysis

suggests that the members of the compensation committee (rather than the governance committee) bear the responsibility

for failing to implement the request, we recommend that shareholders only vote against members of the compensation

committee.

We believe that one independent individual should be appointed to serve as the lead or presiding director. When such a

position is rotated among directors from meeting to meeting, we will recommend voting against the governance committee

chair as we believe the lack of fixed lead or presiding director means that, effectively, the board does not have an

independent board leader.

A forum selection clause is a bylaw provision stipulating that a certain state or federal jurisdiction is the exclusive forum

for specified legal matters. Such a clause effectively limits a shareholder's legal remedy regarding appropriate choice of

venue and related relief.

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approval,

or if the board is currently seeking shareholder approval of a forum selection clause pursuant

to a bundled bylaw amendment rather than as a separate proposal.

9. All members of the governance committee during whose tenure the board adopted, without

shareholder approval, provisions in its charter or bylaws that, through rules on director compensation,

may inhibit the ability of shareholders to nominate directors.

10. The governance committee chair when the board takes actions to limit shareholders’ ability to vote on

matters material to shareholder rights (e.g., through the practice of excluding a shareholder proposal by

means of ratifying a management proposal that is materially different from the shareholder proposal).

11. The governance committee chair when directors’ records for board and committee meeting attendance

are not disclosed, or when it is indicated that a director attended less than 75% of board and committee

meetings but disclosure is sufficiently vague that it is not possible to determine which specific director’s

attendance was lacking.

12. The governance committee chair when a detailed record of proxy voting results from the prior annual

meeting has not been disclosed.

13. The governance committee chair when a company does not clearly disclose the identity of a shareholder

proponent (or lead proponent when there are multiple filers) in their proxy statement. For a detailed

explanation of this policy, please refer to our comprehensive Proxy Paper Guidelines for Environmental,

Social & Governance Initiatives, available at www.glasslewis.com/voting-policies-current/.

In addition, we may recommend that shareholders vote against the chair of the governance committee, or the

entire committee, where the board has amended the company’s governing documents to reduce or remove

important shareholder rights, or to otherwise impede the ability of shareholders to exercise such right, and has

done so without seeking shareholder approval. Examples of board actions that may cause such a

recommendation include: the elimination of the ability of shareholders to call a special meeting or to act by

written consent; an increase to the ownership threshold required for shareholders to call a special meeting; an

increase to vote requirements for charter or bylaw amendments; the adoption of provisions that limit the ability

of shareholders to pursue full legal recourse — such as bylaws that require arbitration of shareholder claims

or that require shareholder plaintiffs to pay the company’s legal expenses in the absence of a court victory

(i.e., “fee-shifting” or “loser pays” bylaws); the adoption of a classified board structure; and the elimination of

the ability of shareholders to remove a director without cause.

Regarding the nominating committee, we will consider recommending that shareholders vote against the

following:

1. All members of the nominating committee, when the committee nominated or renominated

an individual who had a significant conflict of interest or whose past actions demonstrated a lack of

integrity or inability to represent shareholder interests.

2. The nominating committee chair, if the nominating committee did not meet during the year.

3. In the absence of a governance committee, the nominating committee chair when the chair is not

independent, and an independent lead or presiding director has not been appointed.

Glass Lewis will evaluate the circumstances surrounding the adoption of any forum selection clause as well as the general

provisions contained therein. Where it can be reasonably determined that a forum selection clause is narrowly crafted to

suit the particular circumstances facing the company and/or a reasonable sunset provision is included, we may make an

exception to this policy.

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4. The nominating committee chair, when there are fewer than five, or the whole nominating committee

when there are more than 20 members on the board.

5. The nominating committee chair, when a director received a greater than 50% against vote the prior

year and not only was the director not removed, but the issues that raised shareholder concern were

not corrected.

6. The chair of the nominating committee of a board that is not at least 30 percent gender diverse,

or all

members of the nominating committee of a board with no gender diverse directors, at companies

within the Russell 3000 index. For companies outside of the Russell 3000 index, we will recommend

voting against the chair of the nominating committee if there are no gender diverse directors.

7. The chair of the nominating committee of a board with fewer than one director from an

underrepresented community on the board, at companies within the Russell 1000 index.

8. The nominating committee chair when, alongside other governance or board performance concerns, the

average tenure of non-executive directors is 10 years or more and no new independent directors have

joined the board in the past five years. We will not be making voting recommendations solely on this

basis; rather, insufficient board refreshment may be a contributing factor in our recommendations when

additional board-related concerns have been identified.

In addition, we may consider recommending shareholders vote against the chair of the nominating committee

where the board’s failure to ensure the board has directors with relevant experience, either through periodic

director assessment or board refreshment, has contributed to a company’s poor performance. Where these

issues warrant an against vote in the absence of both a governance and a nominating committee, we will

recommend voting against the board chair, unless the chair also serves as the CEO, in which case we will

recommend voting against the longest-serving director.

Board-level Risk Management Oversight

Glass Lewis evaluates the risk management function of a public company board on a strictly case-by-case basis.

Sound risk management, while necessary at all companies, is particularly important at financial firms which

inherently maintain significant exposure to financial risk. We believe such financial firms should have a chief risk

officer reporting directly to the board and a dedicated risk committee or a committee of the board charged with

risk oversight. Moreover, many non-financial firms maintain strategies which involve a high level of exposure to

financial risk. Similarly, since many non-financial firms have complex hedging or trading strategies, those firms

should also have a chief risk officer and a risk committee.

Our views on risk oversight are consistent with those expressed by various regulatory bodies. In its December

2009 Final Rule release on Proxy Disclosure Enhancements, the SEC noted that risk oversight is a key

competence of the board and that additional disclosures would improve investor and shareholder

understanding of the role of the board in the organization’s risk management practices. The final rules, which

Considering that shareholder disapproval clearly relates to the director who received a greater than 50% against vote

rather than the nominating chair, we review the severity of the issue(s) that initially raised shareholder concern as well as

company responsiveness to such matters, and will only recommend voting against the nominating chair if a reasonable

analysis suggests that it would be most appropriate. In rare cases, we will consider recommending against the nominating

chair when a director receives a substantial (i.e., 20% or more) vote against based on the same analysis.

Women and directors that identify with a gender other than male or female.

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became effective on February 28, 2010, now explicitly require companies and mutual funds to describe (while

allowing for some degree of flexibility) the board’s role in the oversight of risk.

When analyzing the risk management practices of public companies, we take note of any significant losses or

writedowns on financial assets and/or structured transactions. In cases where a company has disclosed a sizable

loss or writedown, and where we find that the company’s board-level risk committee’s poor oversight

contributed to the loss, we will recommend that shareholders vote against such committee members on that

basis. In addition, in cases where a company maintains a significant level of financial risk exposure but fails to

disclose any explicit form of board-level risk oversight (committee or otherwise),

we will consider

recommending to vote against the board chair on that basis. However, we generally would not recommend

voting against a combined chair/CEO, except in egregious cases.

Board Oversight of Environmental and Social Issues

Glass Lewis recognizes the importance of ensuring the sustainability of companies’ operations. We believe that

insufficient oversight of material environmental and social issues can present direct legal, financial, regulatory

and reputational risks that could serve to harm shareholder interests. Therefore, we believe that these issues

should be carefully monitored and managed by companies, and that all companies should have an appropriate

oversight structure in place to ensure that they are mitigating attendant risks and capitalizing on related

opportunities to the best extent possible.

To that end, Glass Lewis believes that companies should ensure that boards maintain clear oversight of material

risks to their operations, including those that are environmental and social in nature. These risks could include,

but are not limited to, matters related to climate change, human capital management, diversity, stakeholder

relations, and health, safety & environment.

For companies in the Russell 3000 index and in instances where we identify material oversight concerns, Glass

Lewis will review a company’s overall governance practices and identify which directors or board-level

committees have been charged with oversight of environmental and/or social issues. Furthermore, given the

importance of the board’s role in overseeing environmental and social risks, Glass Lewis will generally

recommend voting against the governance committee chair of a company in the Russell 1000 index that fails to

provide explicit disclosure concerning the board’s role in overseeing these issues.

While we believe that it is important that these issues are overseen at the board level and that shareholders are

afforded meaningful disclosure of these oversight responsibilities, we believe that companies should determine

the best structure for this oversight. In our view, this oversight can be effectively conducted by specific directors,

the entire board, a separate committee, or combined with the responsibilities of a key committee.

When evaluating the board’s role in overseeing environmental and/or social issues, we will examine a

company’s proxy statement and governing documents (such as committee charters) to determine if directors

A committee responsible for risk management could be a dedicated risk committee, the audit committee, or the finance

committee, depending on a given company’s board structure and method of disclosure. At some companies, the entire

board is charged with risk management.

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maintain a meaningful level of oversight of and accountability for a company’s material environmental and

social impacts.

Cyber Risk Oversight

Companies and consumers are exposed to a growing risk of cyber-attacks. These attacks can result in customer

or employee data breaches, harm to a company’s reputation, significant fines or penalties, and interruption to a

company’s operations. Further, in some instances, cyber breaches can result in national security concerns, such

as those impacting companies operating as utilities, defense contractors, and energy companies.

In response to these issues, regulators have increasingly been focused on ensuring companies are providing

appropriate and timely disclosures and protections to stakeholders that could have been adversely impacted by

a breach in a company’s cyber infrastructure.

Given the regulatory focus on, and the potential adverse outcomes from, cyber-related issues, it is our view that

cyber risk is material for all companies. We therefore believe that it is critical that companies evaluate and

mitigate these risks to the greatest extent possible. With that view, we encourage all issuers to provide clear

disclosure concerning the role of the board in overseeing issues related to cybersecurity.

We also believe that disclosure concerning how companies are ensuring directors are fully versed on this rapidly

evolving and dynamic issue can help shareholders understand the seriousness with which companies take this

issue.

We will generally not make voting recommendations on the basis of a company’s oversight or disclosure

concerning cyber-related issues. However, we will closely evaluate a company’s disclosure in this regard in

instances where cyber-attacks have caused significant harm to shareholders and may recommend against

appropriate directors should we find such disclosure or oversight to be insufficient.

Board Accountability for Environmental and Social Performance

Glass Lewis carefully monitors companies’ performance with respect to environmental and social issues,

including those related to climate and human capital management. In situations where we believe that a

company has not properly managed or mitigated material environmental or social risks to the detriment of

shareholder value, or when such mismanagement has threatened shareholder value, Glass Lewis may

recommend that shareholders vote against the members of the board who are responsible for oversight of

environmental and social risks. In the absence of explicit board oversight of environmental and social issues,

Glass Lewis may recommend that shareholders vote against members of the audit committee. In making these

determinations, Glass Lewis will carefully review the situation, its effect on shareholder value, as well as any

corrective action or other response made by the company.

For more information on how Glass Lewis evaluates environmental and social issues, please see Glass Lewis’

Overall Approach to ESG as well as our comprehensive Proxy Paper Guidelines for Environmental, Social &

Governance Initiatives available at www.glasslewis.com/voting-policies-current/.

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Board Accountability for Climate-related Issues

Given the exceptionally broad impacts of a changing climate on companies, the economy, and society in general,

we view climate risk as a material risk for all companies. We therefore believe that boards should be considering

and evaluating their operational resilience under lower-carbon scenarios. While all companies maintain

exposure to climate-related risks, we believe that additional consideration should be given to, and that

disclosure should be provided by those companies whose GHG emissions represent a financially material risk.

We believe that companies with this increased risk exposure, such as those companies identified by groups

including Climate Action 100+, should provide clear and comprehensive disclosure regarding these risks,

including how they are being mitigated and overseen. We believe such information is crucial to allow investors

to understand the company’s management of this issue, as well as the impact of a lower carbon future on the

company’s operations.

Accordingly, for such companies with material exposure to climate risk stemming from their own operations, we

believe thorough climate-related disclosures in line with the recommendations of the Task Force on Climate-

related Financial Disclosures (“TCFD”) should be provided to shareholders. We also believe the boards of these

companies should have explicit and clearly defined oversight responsibilities for climate-related issues. As such,

in instances where we find either (or both) of these disclosures to be absent or significantly lacking, we may

recommend voting against the chair of the committee (or board) charged with oversight of climate-related

issues, or if no committee has been charged with such oversight, the chair of the governance committee.

Further, we may extend our recommendation on this basis to additional members of the responsible committee

in cases where the committee chair is not standing for election due to a classified board, or based on other

factors, including the company’s size and industry and its overall governance profile.

Director Commitments

We believe that directors should have the necessary time to fulfill their duties to shareholders. In our view, an

overcommitted director can pose a material risk to a company’s shareholders, particularly during periods of

crisis. In addition, recent research indicates that the time commitment associated with being a director has been

on a significant upward trend in the past decade.

As a result, we generally recommend that shareholders vote

against a director who serves as an executive officer (other than executive chair) of any public company

while

serving on more than one external public company board, a director who serves as an executive chair of any

public company while serving on more than two external public company boards, and any other director who

serves on more than five public company boards.

For example, the 2015-2016 NACD Public Company Governance Survey states that, on average, directors spent a total of

248.2 hours annual on board-related matters during the past year, which it describes as a “historically high level” that is

significantly above the average hours recorded in 2006. Additionally, the 2020 Spencer Stuart Board Index indicates that,

while 39% of S&P 500 CEOs serve on one additional public board, just 2% of S&P 500 CEOs serve on two additional public

boards and only one CEO serves on three.

When the executive officer in question serves only as an executive at a special purpose acquisition company (SPAC) we

will generally apply the higher threshold of five public company directorships.

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Because we believe that executives will primarily devote their attention to executive duties, we generally will

not recommend that shareholders vote against overcommitted directors at the companies where they serve as

an executive.

When determining whether a director’s service on an excessive number of boards may limit the ability of the

director to devote sufficient time to board duties, we may consider relevant factors such as the size and location

of the other companies where the director serves on the board, the director’s board roles at the companies in

question, whether the director serves on the board of any large privately-held companies, the director’s tenure

on the boards in question, and the director’s attendance record at all companies. In the case of directors who

serve in executive roles other than CEO (e.g., executive chair), we will evaluate the specific duties and

responsibilities of that role in determining whether an exception is warranted.

We may also refrain from recommending against certain directors if the company provides sufficient rationale

for their continued board service. The rationale should allow shareholders to evaluate the scope of the

directors’ other commitments, as well as their contributions to the board including specialized knowledge of the

company’s industry, strategy or key markets, the diversity of skills, perspective and background they provide,

and other relevant factors. We will also generally refrain from recommending to vote against a director who

serves on an excessive number of boards within a consolidated group of companies in related industries, or a

director that represents a firm whose sole purpose is to manage a portfolio of investments which include the

company.

Other Considerations

In addition to the three key characteristics — independence, performance, experience — that we use to

evaluate board members, we consider conflict-of-interest issues as well as the size of the board of directors

when making voting recommendations.

Conflicts of Interest

We believe board members should be wholly free of identifiable and substantial conflicts of interest, regardless

of the overall level of independent directors on the board. Accordingly, we recommend that shareholders vote

against the following types of directors:

1. A CFO who is on the board: In our view, the CFO holds a unique position relative to financial reporting

and disclosure to shareholders. Due to the critical importance of financial disclosure and reporting, we

believe the CFO should report to the board and not be a member of it.

2. A director who provides — or a director who has an immediate family member who provides — material

consulting or other material professional services to the company. These services may include legal,

consulting,

or financial services. We question the need for the company to have consulting

relationships with its directors. We view such relationships as creating conflicts for directors, since they

may be forced to weigh their own interests against shareholder interests when making board decisions.

In addition, a company’s decisions regarding where to turn for the best professional

We will generally refrain from recommending against a director who provides consulting services for the company if the

director is excluded from membership on the board’s key committees and we have not identified significant governance

concerns with the board.

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services may be compromised when doing business with the professional services firm of one of the

company’s directors.

3. A director, or a director who has an immediate family member, engaging in airplane, real estate, or

similar deals, including perquisite-type grants from the company, amounting to more than $50,000.

Directors who receive these sorts of payments from the company will have to make unnecessarily

complicated decisions that may pit their interests against shareholder interests.

4. Interlocking directorships: CEOs or other top executives who serve on each other’s boards create an

interlock that poses conflicts that should be avoided to ensure the promotion of shareholder interests

above all else.

5. All board members who served at a time when a poison pill with a term of longer than one year was

adopted without shareholder approval within the prior twelve months.

In the event a board is

classified and shareholders are therefore unable to vote against all directors, we will recommend voting

against the remaining directors the next year they are up for a shareholder vote. If a poison pill with a

term of one year or less was adopted without shareholder approval, and without adequate justification,

we will consider recommending that shareholders vote against all members of the governance

committee. If the board has, without seeking shareholder approval, and without adequate justification,

extended the term of a poison pill by one year or less in two consecutive years, we will consider

recommending that shareholders vote against the entire board.

Size of the Board of Directors

While we do not believe there is a universally applicable optimal board size, we do believe boards should have

at least five directors to ensure sufficient diversity in decision-making and to enable the formation of key board

committees with independent directors. Conversely, we believe that boards with more than 20 members will

typically suffer under the weight of “too many cooks in the kitchen” and have difficulty reaching consensus and

making timely decisions. Sometimes the presence of too many voices can make it difficult to draw on the

wisdom and experience in the room by virtue of the need to limit the discussion so that each voice may be

heard.

To that end, we typically recommend voting against the chair of the nominating committee (or the governance

committee, in the absence of a nominating committee) at a board with fewer than five directors or more than

20 directors.

Controlled Companies

We believe controlled companies warrant certain exceptions to our independence standards. The board’s

function is to protect shareholder interests; however, when an individual, entity (or group of shareholders party

to a formal agreement) owns more than 50% of the voting shares, the interests of the majority of shareholders

We do not apply a look-back period for this situation. The interlock policy applies to both public and private companies.

We will also evaluate multiple board interlocks among non-insiders (i.e., multiple directors serving on the same boards at

other companies), for evidence of a pattern of poor oversight.

Refer to the “Governance Structure and the Shareholder Franchise” section for further discussion of our policies

regarding anti-takeover measures, including poison pills.

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are the interests of that entity or individual. Consequently, Glass Lewis does not apply our usual two-thirds

board independence rule and therefore we will not recommend voting against boards whose composition

reflects the makeup of the shareholder population.

Independence Exceptions

The independence exceptions that we make for controlled companies are as follows:

1. We do not require that controlled companies have boards that are at least two-thirds independent. So

long as the insiders and/or affiliates are connected with the controlling entity, we accept the presence

of non-independent board members.

2. The compensation committee and nominating and governance committees do not need to consist solely

of independent directors.

a. We believe that standing nominating and corporate governance committees at controlled

companies are unnecessary. Although having a committee charged with the duties of searching

for, selecting, and nominating independent directors can be beneficial, the unique composition

of a controlled company’s shareholder base makes such committees weak and irrelevant.

b. Likewise, we believe that independent compensation committees at controlled companies are

unnecessary. Although independent directors are the best choice for approving and monitoring

senior executives’ pay, controlled companies serve a unique shareholder population whose

voting power ensures the protection of its interests. As such, we believe that having affiliated

directors on a controlled company’s compensation committee is acceptable. However, given

that a controlled company has certain obligations to minority shareholders we feel that an

insider should not serve on the compensation committee. Therefore, Glass Lewis will

recommend voting against any insider (the CEO or otherwise) serving on the compensation

committee.

3. Controlled companies do not need an independent chair or an independent lead or presiding director.

Although an independent director in a position of authority on the board — such as chair or presiding

director — can best carry out the board’s duties, controlled companies serve a unique shareholder

population whose voting power ensures the protection of its interests.

Size of the Board of Directors

We have no board size requirements for controlled companies.

Audit Committee Independence

Despite a controlled company’s status, unlike for the other key committees, we nevertheless believe that audit

committees should consist solely of independent directors. Regardless of a company’s controlled status, the

interests of all shareholders must be protected by ensuring the integrity and accuracy of the company’s financial

statements. Allowing affiliated directors to oversee the preparation of financial reports could create an

insurmountable conflict of interest.

Board Responsiveness at Multi-Class Companies

At controlled companies and companies that have multi-class share structures with unequal voting rights, we

will carefully examine the level of approval or disapproval attributed to unaffiliated shareholders when

determining whether board responsiveness is warranted. In the case of companies that have multi-class share

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structures with unequal voting rights, we will generally examine the level of approval or disapproval attributed

to unaffiliated shareholders on a “one share, one vote” basis. At controlled and multi-class companies, when at

least 20% or more of unaffiliated shareholders vote contrary to management, we believe that boards should

engage with shareholders and demonstrate some initial level of responsiveness, and when a majority or more of

unaffiliated shareholders vote contrary to management we believe that boards should engage with shareholders

and provide a more robust response to fully address shareholder concerns.

Significant Shareholders

Where an individual or entity holds between 20-50% of a company’s voting power, we believe it is reasonable to

allow proportional representation on the board and committees (excluding the audit committee) based on the

individual or entity’s percentage of ownership.

Governance Following an IPO, Spin-off, or Direct Listing

We believe companies that have recently completed an initial public offering (IPO), spin-off, or direct listing

should be allowed adequate time to fully comply with marketplace listing requirements and meet basic

corporate governance standards. Generally speaking, we refrain from making recommendations on the basis of

governance standards (e.g., board independence, committee membership and structure, meeting attendance,

etc.) during the one-year period following an IPO.

However, some cases warrant shareholder action against the board of a company that have completed an IPO,

spin-off, or direct listing within the past year. When evaluating companies that have recently gone public, Glass

Lewis will review the terms of the applicable governing documents in order to determine whether shareholder

rights are being severely restricted indefinitely. We believe boards that approve highly restrictive governing

documents have demonstrated that they may subvert shareholder interests following the IPO. In conducting this

evaluation, Glass Lewis will consider:

1. The adoption of anti-takeover provisions such as a poison pill or classified board

2. Supermajority vote requirements to amend governing documents

3. The presence of exclusive forum or fee-shifting provisions

4. Whether shareholders can call special meetings or act by written consent

5. The voting standard provided for the election of directors

6. The ability of shareholders to remove directors without cause

7. The presence of evergreen provisions in the company’s equity compensation arrangements

8. The presence of a multi-class share structure which does not afford common shareholders voting power

that is aligned with their economic interest

In cases where Glass Lewis determines that the board has approved overly restrictive governing documents, we

will generally recommend voting against members of the governance committee. If there is no governance

committee, or if a portion of such committee members are not standing for election due to a classified board

structure, we will expand our recommendations to additional director nominees, based on who is standing for

election.

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In cases where, preceding an IPO, the board adopts a multi-class share structure where voting rights are not

aligned with economic interest, or an anti-takeover provision, such as a poison pill or classified board, we will

generally recommend voting against all members of the board who served at the time of the IPO if the board: (i)

did not also commit to submitting these provisions to a shareholder vote at the company’s first shareholder

meeting following the IPO; or (ii) did not provide for a reasonable sunset of these provisions (generally three to

five years in the case of a classified board or poison pill; or seven years or less in the case of a multi-class share

structure). In the case of a multi-class share structure, if these provisions are put to a shareholder vote, we will

examine the level of approval or disapproval attributed to unaffiliated shareholders when determining the vote

outcome.

In our view, adopting an anti-takeover device unfairly penalizes future shareholders who (except for electing to

buy or sell the stock) are unable to weigh in on a matter that could potentially negatively impact their ownership

interest. This notion is strengthened when a board adopts a classified board with an infinite duration or a poison

pill with a five- to ten-year term immediately prior to going public, thereby insulating management for a

substantial amount of time.

In addition, shareholders should also be wary of companies that adopt supermajority voting requirements

before their IPO. Absent explicit provisions in the articles or bylaws stipulating that certain policies will be

phased out over a certain period of time, long-term shareholders could find themselves in the predicament of

having to attain a supermajority vote to approve future proposals seeking to eliminate such policies.

Governance Following a Business Combination with a Special Purpose

Acquisition Company

The business combination of a private company with a publicly traded special purpose acquisition company

(SPAC) facilitates the private entity becoming a publicly traded corporation. Thus, the business combination

represents the private company’s de-facto IPO. We believe that some cases warrant shareholder action against

the board of a company that have completed a business combination with a SPAC within the past year.

At meetings where shareholders vote on the business combination of a SPAC with a private company,

shareholders are generally voting on a new corporate charter for the post-combination company as a condition

to approval of the business combination. In many cases, shareholders are faced with the dilemma of having to

approve corporate charters that severely restrict shareholder rights to facilitate the business combination.

Therefore, when shareholders are required to approve binding charters as a condition to approval of a business

combination with a SPAC, we believe shareholders should also be provided with advisory votes on material

charter amendments as a means to voice their opinions on such restrictive governance provisions.

When evaluating companies that have recently gone public via business combination with a SPAC, Glass Lewis

will review the terms of the applicable governing documents to determine whether shareholder rights are being

severely restricted indefinitely and whether these restrictive provisions were put forth for a shareholder vote on

an advisory basis at the prior meeting where shareholders voted on the business combination.

In cases where, prior to the combined company becoming publicly traded, the board adopts a multi-class share

structure where voting rights are not aligned with economic interest, or an anti-takeover provision, such as a

poison pill or classified board, we will generally recommend voting against all members of the board who served

2023 Policy Guidelines — United States

at the time of the combined company becoming publicly traded if the board: (i) did not also submit these

provisions to a shareholder vote on an advisory basis at the prior meeting where shareholders voted on the

business combination; (ii) did not also commit to submitting these provisions to a shareholder vote at the

company’s first shareholder meeting following the company becoming publicly traded; or (iii) did not provide for

a reasonable sunset of these provisions (generally three to five years in the case of a classified board or poison

pill; or seven years or less in the case of a multi-class share structure).

Consistent with our view on IPOs, adopting an anti-takeover device unfairly penalizes future shareholders who

(except for electing to buy or sell the stock) are unable to weigh in on a matter that could potentially negatively

impact their ownership interest.

Dual-Listed or Foreign-Incorporated Companies

For companies that trade on multiple exchanges or are incorporated in foreign jurisdictions but trade only in the

U.S., we will apply the governance standard most relevant in each situation. We will consider a number of

factors in determining which Glass Lewis country-specific policy to apply, including but not limited to: (i) the

corporate governance structure and features of the company including whether the board structure is unique to

a particular market; (ii) the nature of the proposals; (iii) the location of the company’s primary listing, if one can

be determined; (iv) the regulatory/governance regime that the board is reporting against; and (v) the availability

and completeness of the company’s SEC filings.

OTC-listed Companies

Companies trading on the OTC Bulletin Board are not considered “listed companies” under SEC rules and

therefore not subject to the same governance standards as listed companies. However, we believe that more

stringent corporate governance standards should be applied to these companies given that their shares are still

publicly traded.

When reviewing OTC companies, Glass Lewis will review the available disclosure relating to the shareholder

meeting to determine whether shareholders are able to evaluate several key pieces of information, including: (i)

the composition of the board’s key committees, if any; (ii) the level of share ownership of company insiders or

directors; (iii) the board meeting attendance record of directors; (iv) executive and non-employee director

compensation; (v) related-party transactions conducted during the past year; and (vi) the board’s leadership

structure and determinations regarding director independence.

We are particularly concerned when company disclosure lacks any information regarding the board’s key

committees. We believe that committees of the board are an essential tool for clarifying how the responsibilities

of the board are being delegated, and specifically for indicating which directors are accountable for ensuring: (i)

the independence and quality of directors, and the transparency and integrity of the nominating process; (ii)

compensation programs that are fair and appropriate; (iii) proper oversight of the company’s accounting,

financial reporting, and internal and external audits; and (iv) general adherence to principles of good corporate

governance.

In cases where shareholders are unable to identify which board members are responsible for ensuring oversight

of the above-mentioned responsibilities, we may consider recommending against certain members of the board.

2023 Policy Guidelines — United States

Ordinarily, we believe it is the responsibility of the corporate governance committee to provide thorough

disclosure of the board’s governance practices. In the absence of such a committee, we believe it is appropriate

to hold the board’s chair or, if such individual is an executive of the company, the longest-serving non-executive

board member accountable.

Mutual Fund Boards

Mutual funds, or investment companies, are structured differently from regular public companies (i.e., operating

companies). Typically, members of a fund’s advisor are on the board and management takes on a different role

from that of regular public companies. Thus, we focus on a short list of requirements, although many of our

guidelines remain the same.

The following mutual fund policies are similar to the policies for regular public companies:

1. Size of the board of directors — The board should be made up of between five and twenty directors.

2. The CFO on the board — Neither the CFO of the fund nor the CFO of the fund’s registered investment

advisor should serve on the board.

3. Independence of the audit committee — The audit committee should consist solely of independent

directors.

4. Audit committee financial expert — At least one member of the audit committee should be designated

as the audit committee financial expert.

The following differences from regular public companies apply at mutual funds:

1. Independence of the board — We believe that three-fourths of an investment company’s board should

be made up of independent directors. This is consistent with a proposed SEC rule on investment

company boards. The Investment Company Act requires 40% of the board to be independent, but in

2001, the SEC amended the Exemptive Rules to require that a majority of a mutual fund board be

independent. In 2005, the SEC proposed increasing the independence threshold to 75%. In 2006, a

federal appeals court ordered that this rule amendment be put back out for public comment, putting it

back into “proposed rule” status. Since mutual fund boards play a vital role in overseeing the

relationship between the fund and its investment manager, there is greater need for independent

oversight than there is for an operating company board.

2. When the auditor is not up for ratification — We do not recommend voting against the audit

committee if the auditor is not up for ratification. Due to the different legal structure of an investment

company compared to an operating company, the auditor for the investment company (i.e., mutual

fund)

does not conduct the same level of financial review for each investment company as for an

operating company.

3. Non-independent chair — The SEC has proposed that the chair of the fund board be independent. We

agree that the roles of a mutual fund’s chair and CEO should be separate. Although we believe this

would be best at all companies, we recommend voting against the chair of an investment company’s

nominating committee as well as the board chair if the chair and CEO of a mutual fund are the same

person and the fund does not have an independent lead or presiding director. Seven former SEC

commissioners support the appointment of an independent chair and we agree with them that “an

independent board chair would be better able to create conditions favoring the long-term interests of

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fund shareholders than would a chair who is an executive of the advisor.” (See the comment letter sent

to the SEC in support of the proposed rule at http://www.sec.gov/news/studies/indchair.pdf.)

4. Multiple funds overseen by the same director — Unlike service on a public company board, mutual

fund boards require much less of a time commitment. Mutual fund directors typically serve on dozens of

other mutual fund boards, often within the same fund complex. The Investment Company Institute’s

(ICI) Overview of Fund Governance Practices, 1994-2012, indicates that the average number of funds

served by an independent director in 2012 was 53. Absent evidence that a specific director is hindered

from being an effective board member at a fund due to service on other funds’ boards, we refrain from

maintaining a cap on the number of outside mutual fund boards that we believe a director can serve on.

Declassified Boards

Glass Lewis favors the repeal of staggered boards and the annual election of directors. We believe staggered

boards are less accountable to shareholders than boards that are elected annually. Furthermore, we feel the

annual election of directors encourages board members to focus on shareholder interests.

Empirical studies have shown: (i) staggered boards are associated with a reduction in a firm’s valuation; and (ii)

in the context of hostile takeovers, staggered boards operate as a takeover defense, which entrenches

management, discourages potential acquirers, and delivers a lower return to target shareholders.

In our view, there is no evidence to demonstrate that staggered boards improve shareholder returns in a

takeover context. Some research has indicated that shareholders are worse off when a staggered board blocks a

transaction; further, when a staggered board negotiates a friendly transaction, no statistically significant

difference in premium occurs.

Additional research found that charter-based staggered boards “reduce the

market value of a firm by 4% to 6% of its market capitalization” and that “staggered boards bring about and not

merely reflect this reduction in market value.”

A subsequent study reaffirmed that classified boards reduce

shareholder value, finding “that the ongoing process of dismantling staggered boards, encouraged by

institutional investors, could well contribute to increasing shareholder wealth.”

Shareholders have increasingly come to agree with this view. In 2019, 90% of S&P 500 companies had

declassified boards, up from 68% in 2009.

Management proposals to declassify boards are approved with near

unanimity and shareholder proposals on the topic also receive strong shareholder support; in 2014, shareholder

proposals requesting that companies declassify their boards received average support of 84% (excluding

Lucian Bebchuk, John Coates IV, Guhan Subramanian, “The Powerful Antitakeover Force of Staggered Boards: Further

Findings and a Reply to Symposium Participants,” 55 Stanford Law Review 885-917 (2002).

Lucian Bebchuk, Alma Cohen, “The Costs of Entrenched Boards” (2004).

Lucian Bebchuk, Alma Cohen and Charles C.Y. Wang, “Staggered Boards and the Wealth of Shareholders: Evidence from

a Natural Experiment,”

SSRN: http://ssrn.com/abstract=1706806 (2010), p. 26.

Spencer Stuart Board Index, 2019, p. 15.

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abstentions and broker non-votes), whereas in 1987, only 16.4% of votes cast favored board declassification.

Further, a growing number of companies, nearly half of all those targeted by shareholder proposals requesting

that all directors stand for election annually, either recommended shareholders support the proposal or made

no recommendation, a departure from the more traditional management recommendation to vote against

shareholder proposals.

Given our belief that declassified boards promote director accountability, the empirical evidence suggesting

staggered boards reduce a company’s value and the established shareholder opposition to such a structure,

Glass Lewis supports the declassification of boards and the annual election of directors.

Board Composition and Refreshment

Glass Lewis strongly supports routine director evaluation, including independent external reviews, and periodic

board refreshment to foster the sharing of diverse perspectives in the boardroom and the generation of new

ideas and business strategies. Further, we believe the board should evaluate the need for changes to board

composition based on an analysis of skills and experience necessary for the company, as well as the results of

the director evaluations, as opposed to relying solely on age or tenure limits. When necessary, shareholders can

address concerns regarding proper board composition through director elections.

In our view, a director’s experience can be a valuable asset to shareholders because of the complex, critical

issues that boards face. This said, we recognize that in rare circumstances, a lack of refreshment can contribute

to a lack of board responsiveness to poor company performance.

We will note as a potential concern instances where the average tenure of non-executive directors is 10 years or

more and no new directors have joined the board in the past five years. While we will be highlighting this as a

potential area of concern, we will not be making voting recommendations strictly on this basis, unless we have

identified other governance or board performance concerns.

On occasion, age or term limits can be used as a means to remove a director for boards that are unwilling to

police their membership and enforce turnover. Some shareholders support term limits as a way to force change

in such circumstances.

While we understand that age limits can aid board succession planning, the long-term impact of age limits

restricts experienced and potentially valuable board members from service through an arbitrary means. We

believe that shareholders are better off monitoring the board’s overall composition, including the diversity of its

members, the alignment of the board’s areas of expertise with a company’s strategy, the board’s approach to

corporate governance, and its stewardship of company performance, rather than imposing inflexible rules that

don’t necessarily correlate with returns or benefits for shareholders.

However, if a board adopts term/age limits, it should follow through and not waive such limits. In cases where

the board waives its term/age limits for two or more consecutive years, Glass Lewis will generally recommend

that shareholders vote against the nominating and/or governance committee chair, unless a compelling

Lucian Bebchuk, John Coates IV and Guhan Subramanian, “The Powerful Antitakeover Force of Staggered Boards: Theory,

Evidence, and Policy”.

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rationale is provided for why the board is proposing to waive this rule, such as consummation of a corporate

transaction.

Board Diversity

Glass Lewis recognizes the importance of ensuring that the board is composed of directors who have a diversity

of skills, thought and experience, as such diversity benefits companies by providing a broad range of

perspectives and insights. Glass Lewis closely reviews the composition of the board for representation of diverse

director candidates.

Board Gender Diversity

Beginning in 2023, we will generally recommend voting against the chair of the nominating committee of a

board that is not at least 30 percent gender diverse, or all members of the nominating committee of a board

with no gender diverse directors, at companies within the Russell 3000 index. For companies outside the Russell

3000 index, our existing policy requiring a minimum of one gender diverse director will remain in place.

We may extend our gender diversity recommendations to additional members of the nominating committee in

cases where the committee chair is not standing for election due to a classified board, or based on other factors,

including the company’s size and industry, applicable laws in its state of headquarters, and its overall

governance profile.

Additionally, when making these voting recommendations, we will carefully review a company’s disclosure of its

diversity considerations and may refrain from recommending that shareholders vote against directors when

boards have provided a sufficient rationale or plan to address the lack of diversity on the board, including a

timeline of when the board intends to appoint additional gender diverse directors (generally by the next annual

meeting).

Board Underrepresented Community Diversity

Beginning in 2023, we will generally recommend against the chair of the nominating committee of a board with

fewer than one director from an underrepresented community on the board at companies within the Russell

1000 index.

We define “underrepresented community director” as an individual who self-identifies as Black, African

American, North African, Middle Eastern, Hispanic, Latino, Asian, Pacific Islander, Native American, Native

Hawaiian, or Alaskan Native, or who self-identifies as gay, lesbian, bisexual, or transgender. For the purposes of

this evaluation, we will rely solely on self-identified demographic information as disclosed in company proxy

statements.

We may extend our underrepresented community diversity recommendations to additional members of the

nominating committee in cases where the committee chair is not standing for election due to a classified board,

or based on other factors, including the company’s size and industry, applicable laws in its state of headquarters,

and its overall governance profile.

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Additionally, when making these voting recommendations, we will carefully review a company’s disclosure of its

diversity considerations and may refrain from recommending that shareholders vote against directors when

boards have provided a sufficient rationale or plan to address the lack of diversity on the board, including a

timeline to appoint additional directors from an underrepresented community (generally by the next annual

meeting).

State Laws on Diversity

Several states have begun to encourage board diversity through legislation. Some state laws imposed

mandatory board composition requirements, while other states have enacted or are considering legislation that

encourages companies to diversify their boards but does not mandate board composition requirements.

Furthermore, several states have enacted or are considering enacting certain disclosure or reporting

requirements in filings made with each respective state annually.

Glass Lewis will recommend in accordance with mandatory board composition requirements set forth in

applicable state laws when they come into effect. We will generally refrain from recommending against

directors when applicable state laws do not mandate board composition requirements, are non-binding, or

solely impose disclosure or reporting requirements.

We note that during 2022, California’s Senate Bill 826 and Assembly Bill 979 regarding board gender and

“underrepresented community” diversity, respectively, were both deemed to violate the equal protection clause

of the California state constitution. These laws are currently in the appeals process.

Accordingly, where we previously recommended in accordance with mandatory board composition

requirements set forth in California’s SB 826 and AB 979, we will refrain from providing recommendations

pursuant to these state board composition requirements until further notice while we continue to monitor the

appeals process. However, we will continue to monitor compliance with these requirements.

Disclosure of Director Diversity and Skills

Because company disclosure is critical when measuring the mix of diverse attributes and skills of directors, Glass

Lewis assesses the quality of such disclosure in companies’ proxy statements. Accordingly, we reflect how a

company’s proxy statement presents: (i) the board’s current percentage of racial/ethnic diversity; (ii) whether

the board’s definition of diversity explicitly includes gender and/or race/ethnicity; (iii) whether the board has

adopted a policy requiring women and minorities to be included in the initial pool of candidates when selecting

new director nominees (aka “Rooney Rule”); and (iv) board skills disclosure. Such ratings will help inform our

assessment of a company’s overall governance and may be a contributing factor in our recommendations when

additional board-related concerns have been identified.

At companies in the Russell 1000 index that have not provided any disclosure in any of the above categories, we

will generally recommend voting against the chair of the nominating and/or governance committee. Further,

beginning in 2023, when companies in the Russell 1000 index have not provided any disclosure of individual or

aggregate racial/ethnic minority board demographic information, we will generally recommend voting against

the chair of the nominating and/or governance committee.

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Stock Exchange Diversity Disclosure Requirements

On August 6, 2021, the U.S. Securities and Exchange Commission (SEC) approved new listing rules regarding

board diversity and disclosure for Nasdaq-listed companies. Beginning in 2022, companies listed on the Nasdaq

stock exchange are required to disclose certain board diversity statistics annually in a standardized format in the

proxy statement or on the company's website. Nasdaq-listed companies are required to provide this disclosure

by the later of (i) August 8, 2022, or (ii) the date the company files its proxy statement for its 2022 annual

meeting. Accordingly, for annual meetings held after August 8, 2022, of applicable Nasdaq-listed companies, we

will recommend voting against the chair of the governance committee when the required disclosure has not

been provided.

Proxy Access

In lieu of running their own contested election, proxy access would not only allow certain shareholders to

nominate directors to company boards but the shareholder nominees would be included on the company’s

ballot, significantly enhancing the ability of shareholders to play a meaningful role in selecting their

representatives. Glass Lewis generally supports affording shareholders the right to nominate director candidates

to management’s proxy as a means to ensure that significant, long-term shareholders have an ability to

nominate candidates to the board.

Companies generally seek shareholder approval to amend company bylaws to adopt proxy access in response to

shareholder engagement or pressure, usually in the form of a shareholder proposal requesting proxy access,

although some companies may adopt some elements of proxy access without prompting. Glass Lewis considers

several factors when evaluating whether to support proposals for companies to adopt proxy access including the

specified minimum ownership and holding requirement for shareholders to nominate one or more directors, as

well as company size, performance and responsiveness to shareholders.

For a discussion of recent regulatory events in this area, along with a detailed overview of the Glass Lewis

approach to shareholder proposals regarding Proxy Access, refer to Glass Lewis’ Proxy Paper Guidelines for

Environmental, Social & Governance Initiatives, available at www.glasslewis.com.

Majority Vote for Election of Directors

Majority voting for the election of directors is fast becoming the de facto standard in corporate board elections.

In our view, the majority voting proposals are an effort to make the case for shareholder impact on director

elections on a company-specific basis.

While this proposal would not give shareholders the opportunity to nominate directors or lead to elections

where shareholders have a choice among director candidates, if implemented, the proposal would allow

shareholders to have a voice in determining whether the nominees proposed by the board should actually serve

as the overseer-representatives of shareholders in the boardroom. We believe this would be a favorable

outcome for shareholders.

The number of shareholder proposals requesting that companies adopt a majority voting standard has declined

significantly during the past decade, largely as a result of widespread adoption of majority voting or director

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resignation policies at U.S. companies. In 2019, 89% of the S&P 500 Index had implemented a resignation policy

for directors failing to receive majority shareholder support, compared to 65% in 2009.

The Plurality Vote Standard

Today, most U.S. companies still elect directors by a plurality vote standard. Under that standard, if one

shareholder holding only one share votes in favor of a nominee (including that director, if the director is a

shareholder), that nominee “wins” the election and assumes a seat on the board. The common concern among

companies with a plurality voting standard is the possibility that one or more directors would not receive a

majority of votes, resulting in “failed elections.”

Advantages of a Majority Vote Standard

If a majority vote standard were implemented, a nominee would have to receive the support of a majority of the

shares voted in order to be elected. Thus, shareholders could collectively vote to reject a director they believe

will not pursue their best interests. Given that so few directors (less than 100 a year) do not receive majority

support from shareholders, we think that a majority vote standard is reasonable since it will neither result in

many failed director elections nor reduce the willingness of qualified, shareholder-focused directors to serve in

the future. Further, most directors who fail to receive a majority shareholder vote in favor of their election do

not step down, underscoring the need for true majority voting.

We believe that a majority vote standard will likely lead to more attentive directors. Although shareholders only

rarely fail to support directors, the occasional majority vote against a director’s election will likely deter the

election of directors with a record of ignoring shareholder interests. Glass Lewis will therefore generally support

proposals calling for the election of directors by a majority vote, excepting contested director elections.

In response to the high level of support majority voting has garnered, many companies have voluntarily taken

steps to implement majority voting or modified approaches to majority voting. These steps range from a

modified approach requiring directors that receive a majority of withheld votes to resign (i.e., a resignation

policy) to actually requiring a majority vote of outstanding shares to elect directors.

We feel that the modified approach does not go far enough because requiring a director to resign is not the

same as requiring a majority vote to elect a director and does not allow shareholders a definitive voice in the

election process. Further, under the modified approach, the corporate governance committee could reject a

resignation and, even if it accepts the resignation, the corporate governance committee decides on the

director’s replacement. And since the modified approach is usually adopted as a policy by the board or a board

committee, it could be altered by the same board or committee at any time.

Conflicting and Excluded Proposals

SEC Rule 14a-8(i)(9) allows companies to exclude shareholder proposals “if the proposal directly conflicts with

one of the company’s own proposals to be submitted to shareholders at the same meeting.” On October 22,

Spencer Stuart Board Index, 2019, p. 15.

2023 Policy Guidelines — United States

2015, the SEC issued Staff Legal Bulletin No. 14H (SLB 14H) clarifying its rule concerning the exclusion of certain

shareholder proposals when similar items are also on the ballot. SLB 14H increased the burden on companies to

prove to SEC staff that a conflict exists; therefore, many companies still chose to place management proposals

alongside similar shareholder proposals in many cases.

During the 2018 proxy season, a new trend in the SEC’s interpretation of this rule emerged. Upon submission of

shareholder proposals requesting that companies adopt a lower special meeting threshold, several companies

petitioned the SEC for no-action relief under the premise that the shareholder proposals conflicted with

management’s own special meeting proposals, even though the management proposals set a higher threshold

than those requested by the proponent. No-action relief was granted to these companies; however, the SEC

stipulated that the companies must state in the rationale for the management proposals that a vote in favor of

management’s proposal was tantamount to a vote against the adoption of a lower special meeting threshold. In

certain instances, shareholder proposals to lower an existing special meeting right threshold were excluded on

the basis that they conflicted with management proposals seeking to ratify the existing special meeting rights.

We find the exclusion of these shareholder proposals to be especially problematic as, in these instances,

shareholders are not offered any enhanced shareholder right, nor would the approval (or rejection) of the

ratification proposal initiate any type of meaningful change to shareholders’ rights.

In instances where companies have excluded shareholder proposals, such as those instances where special

meeting shareholder proposals are excluded as a result of “conflicting” management proposals, Glass Lewis will

take a case-by-case approach, taking into account the following issues:

• The threshold proposed by the shareholder resolution;

• The threshold proposed or established by management and the attendant rationale for the threshold;

• Whether management’s proposal is seeking to ratify an existing special meeting right or adopt a bylaw

that would establish a special meeting right; and

• The company’s overall governance profile, including its overall responsiveness to and engagement with

shareholders.

Glass Lewis generally favors a 10-15% special meeting right. Accordingly, Glass Lewis will generally recommend

voting for management or shareholder proposals that fall within this range. When faced with conflicting

proposals, Glass Lewis will generally recommend in favor of the lower special meeting right and will recommend

voting against the proposal with the higher threshold. However, in instances where there are conflicting

management and shareholder proposals and a company has not established a special meeting right, Glass Lewis

may recommend that shareholders vote in favor of the shareholder proposal and that they abstain from a

management-proposed bylaw amendment seeking to establish a special meeting right. We believe that an

abstention is appropriate in this instance in order to ensure that shareholders are sending a clear signal

regarding their preference for the appropriate threshold for a special meeting right, while not directly opposing

the establishment of such a right.

In cases where the company excludes a shareholder proposal seeking a reduced special meeting right by means

of ratifying a management proposal that is materially different from the shareholder proposal, we will generally

recommend voting against the chair or members of the governance committee.

In other instances of conflicting management and shareholder proposals, Glass Lewis will consider the following:

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• The nature of the underlying issue;

• The benefit to shareholders of implementing the proposal;

• The materiality of the differences between the terms of the shareholder proposal and management

proposal;

• The context of a company’s shareholder base, corporate structure and other relevant circumstances;

and

• A company’s overall governance profile and, specifically, its responsiveness to shareholders as

evidenced by a company’s response to previous shareholder proposals and its adoption of progressive

shareholder rights provisions.

In recent years, we have seen the dynamic nature of the considerations given by the SEC when determining

whether companies may exclude certain shareholder proposals. We understand that not all shareholder

proposals serve the long-term interests of shareholders, and value and respect the limitations placed on

shareholder proponents, as certain shareholder proposals can unduly burden companies. However, Glass Lewis

believes that shareholders should be able to vote on issues of material importance.

We view the shareholder proposal process as an important part of advancing shareholder rights and

encouraging responsible and financially sustainable business practices. While recognizing that certain proposals

cross the line between the purview of shareholders and that of the board, we generally believe that companies

should not limit investors’ ability to vote on shareholder proposals that advance certain rights or promote

beneficial disclosure. Accordingly, Glass Lewis will make note of instances where a company has successfully

petitioned the SEC to exclude shareholder proposals. If after review we believe that the exclusion of a

shareholder proposal is detrimental to shareholders, we may, in certain very limited circumstances, recommend

against members of the governance committee.

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Transparency and Integrity in Financial

Reporting

Auditor Ratification

The auditor’s role as gatekeeper is crucial in ensuring the integrity and transparency of the financial information

necessary for protecting shareholder value. Shareholders rely on the auditor to ask tough questions and to do a

thorough analysis of a company’s books to ensure that the information provided to shareholders is complete,

accurate, fair, and that it is a reasonable representation of a company’s financial position. The only way

shareholders can make rational investment decisions is if the market is equipped with accurate information

about a company’s fiscal health. As stated in the October 6, 2008 Final Report of the Advisory Committee on the

Auditing Profession to the U.S. Department of the Treasury:

“The auditor is expected to offer critical and objective judgment on the financial matters under

consideration, and actual and perceived absence of conflicts is critical to that expectation. The

Committee believes that auditors, investors, public companies, and other market participants must

understand the independence requirements and their objectives, and that auditors must adopt a mindset

of skepticism when facing situations that may compromise their independence.”

As such, shareholders should demand an objective, competent and diligent auditor who performs at or above

professional standards at every company in which the investors hold an interest. Like directors, auditors should

be free from conflicts of interest and should avoid situations requiring a choice between the auditor’s interests

and the public’s interests. Almost without exception, shareholders should be able to annually review an

auditor’s performance and to annually ratify a board’s auditor selection. Moreover, in October 2008, the

Advisory Committee on the Auditing Profession went even further, and recommended that “to further enhance

audit committee oversight and auditor accountability ... disclosure in the company proxy statement regarding

shareholder ratification [should] include the name(s) of the senior auditing partner(s) staffed on the

engagement.”

On August 16, 2011, the PCAOB issued a Concept Release seeking public comment on ways that auditor

independence, objectivity and professional skepticism could be enhanced, with a specific emphasis on

mandatory audit firm rotation. The PCAOB convened several public roundtable meetings during 2012 to further

discuss such matters. Glass Lewis believes auditor rotation can ensure both the independence of the auditor and

the integrity of the audit; we will typically recommend supporting proposals to require auditor rotation when

the proposal uses a reasonable period of time (usually not less than 5-7 years), particularly at companies with a

history of accounting problems.

On June 1, 2017, the PCAOB adopted new standards to enhance auditor reports by providing additional

important information to investors. For companies with fiscal year end dates on or after December 15, 2017,

“Final Report of the Advisory Committee on the Auditing Profession to the U.S. Department of the Treasury.” p. VIII:20,

October 6, 2008.

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reports were required to include the year in which the auditor began serving consecutively as the company’s

auditor. For large accelerated filers with fiscal year ends of June 30, 2019 or later, and for all other companies

with fiscal year ends of December 15, 2020 or later, communication of critical audit matters (CAMs) will also be

required. CAMs are matters that have been communicated to the audit committee, are related to accounts or

disclosures that are material to the financial statements, and involve especially challenging, subjective, or

complex auditor judgment.

Glass Lewis believes the additional reporting requirements are beneficial for investors. The additional

disclosures can provide investors with information that is critical to making an informed judgment about an

auditor’s independence and performance. Furthermore, we believe the additional requirements are an

important step toward enhancing the relevance and usefulness of auditor reports, which too often are seen as

boilerplate compliance documents that lack the relevant details to provide meaningful insight into a particular

audit.

Voting Recommendations on Auditor Ratification

We generally support management’s choice of auditor except when we believe the auditor’s independence or

audit integrity has been compromised. Where a board has not allowed shareholders to review and ratify an

auditor, we typically recommend voting against the audit committee chair. When there have been material

restatements of annual financial statements or material weaknesses in internal controls, we usually recommend

voting against the entire audit committee.

Reasons why we may not recommend ratification of an auditor include:

1. When audit fees plus audit-related fees total less than the tax fees and/or other non-audit fees.

2. Recent material restatements of annual financial statements, including those resulting in the reporting

of material weaknesses in internal controls and including late filings by the company where the auditor

bears some responsibility for the restatement or late filing.

3. When the auditor performs prohibited services such as tax-shelter work, tax services for the CEO or CFO,

or contingent-fee work, such as a fee based on a percentage of economic benefit to the company.

4. When audit fees are excessively low, especially when compared with other companies in the same

industry.

5. When the company has aggressive accounting policies.

6. When the company has poor disclosure or lack of transparency in its financial statements.

7. Where the auditor limited its liability through its contract with the company or the audit contract

requires the corporation to use alternative dispute resolution procedures without adequate

justification.

8. We also look for other relationships or concerns with the auditor that might suggest a conflict between

the auditor’s interests and shareholder interests.

9. In determining whether shareholders would benefit from rotating the company’s auditor, where

relevant we will consider factors that may call into question an auditor’s effectiveness, including auditor

An auditor does not audit interim financial statements. Thus, we generally do not believe that an auditor should be

opposed due to a restatement of interim financial statements unless the nature of the misstatement is clear from a reading

of the incorrect financial statements.

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tenure, a pattern of inaccurate audits, and any ongoing litigation or significant controversies. When

Glass Lewis considers ongoing litigation and significant controversies, it is mindful that such matters may

involve unadjudicated allegations. Glass Lewis does not assume the truth of such allegations or that the

law has been violated. Instead, Glass Lewis focuses more broadly on whether, under the particular facts

and circumstances presented, the nature and number of such lawsuits or other significant controversies

reflects on the risk profile of the company or suggests that appropriate risk mitigation measures may be

warranted.”

Pension Accounting Issues

A pension accounting question occasionally raised in proxy proposals is what effect, if any, projected returns on

employee pension assets should have on a company’s net income. This issue often arises in the executive-

compensation context in a discussion of the extent to which pension accounting should be reflected in business

performance for purposes of calculating payments to executives.

Glass Lewis believes that pension credits should not be included in measuring income that is used to award

performance-based compensation. Because many of the assumptions used in accounting for retirement plans

are subject to the company’s discretion, management would have an obvious conflict of interest if pay were tied

to pension income. In our view, projected income from pensions does not truly reflect a company’s

performance.

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The Link Between Compensation and

Performance

Glass Lewis carefully reviews the compensation awarded to senior executives, as we believe that this is an

important area in which the board’s priorities are revealed. Glass Lewis strongly believes executive

compensation should be linked directly with the performance of the business the executive is charged with

managing. We believe the most effective compensation arrangements provide for an appropriate mix of

performance-based short- and long-term incentives in addition to fixed pay elements while promoting a prudent

and sustainable level of risk-taking.

Glass Lewis believes that comprehensive, timely and transparent disclosure of executive pay is critical to

allowing shareholders to evaluate the extent to which pay is aligned with company performance. When

reviewing proxy materials, Glass Lewis examines whether the company discloses the performance metrics used

to determine executive compensation. We recognize performance metrics must necessarily vary depending on

the company and industry, among other factors, and may include a wide variety of financial measures as well as

industry-specific performance indicators. However, we believe companies should disclose why the specific

performance metrics were selected and how the actions they are designed to incentivize will lead to better

corporate performance.

Moreover, it is rarely in shareholders’ interests to disclose competitive data about individual salaries below the

senior executive level. Such disclosure could create internal personnel discord that would be counterproductive

for the company and its shareholders. While we favor full disclosure for senior executives and we view pay

disclosure at the aggregate level (e.g., the number of employees being paid over a certain amount or in certain

categories) as potentially useful, we do not believe shareholders need or will benefit from detailed reports

about individual management employees other than the most senior executives. Additional company disclosure

provided as a result of the recent final rules on pay versus performance from the SEC in August 2022 may be

considered if they provide further insight into a company’s executive pay program.

Advisory Vote on Executive Compensation

(Say-on-Pay)

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) required companies to

hold an advisory vote on executive compensation at the first shareholder meeting that occurs six months after

enactment of the bill (January 21, 2011).

This practice of allowing shareholders a non-binding vote on a company’s compensation report is standard

practice in many non-U.S. countries, and has been a requirement for most companies in the United Kingdom

since 2003 and in Australia since 2005. Although say-on-pay proposals are non-binding, a high level of

“against” or “abstain” votes indicates substantial shareholder concern about a company’s compensation policies

and procedures.

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Given the complexity of most companies’ compensation programs, Glass Lewis applies a highly nuanced

approach when analyzing advisory votes on executive compensation. We review each company’s compensation

on a case-by-case basis, recognizing that each company must be examined in the context of industry, size,

maturity, performance, financial condition, its historic pay for performance practices, and any other relevant

internal or external factors.

We believe that each company should design and apply specific compensation policies and practices that are

appropriate to the circumstances of the company and, in particular, will attract and retain competent executives

and other staff, while motivating them to grow the company’s long-term shareholder value.

Where we find those specific policies and practices serve to reasonably align compensation with performance,

and such practices are adequately disclosed, Glass Lewis will recommend supporting the company’s approach.

If, however, those specific policies and practices fail to demonstrably link compensation with performance, Glass

Lewis will generally recommend voting against the say-on-pay proposal.

Glass Lewis reviews say-on-pay proposals on both a qualitative basis and a quantitative basis, with a focus on

several main areas:

• The overall design and structure of the company’s executive compensation programs including selection

and challenging nature of performance metrics;

• The implementation and effectiveness of the company’s executive compensation programs including

pay mix and use of performance metrics in determining pay levels;

• The quality and content of the company’s disclosure;

• The quantum paid to executives; and

• The link between compensation and performance as indicated by the company’s current and past pay-

for-performance grades.

We also review any significant changes or modifications, including post fiscal year-end changes and one-time

awards, particularly where the changes touch upon issues that are material to Glass Lewis recommendations.

Say-on-Pay Voting Recommendations

In cases where we find deficiencies in a company’s compensation program’s design, implementation or

management, we will recommend that shareholders vote against the say-on-pay proposal. Generally such

instances include evidence of a pattern of poor pay-for-performance practices (i.e., deficient or failing pay-for-

performance grades), unclear or questionable disclosure regarding the overall compensation structure (e.g.,

limited information regarding benchmarking processes, limited rationale for bonus performance metrics and

targets, etc.), questionable adjustments to certain aspects of the overall compensation structure (e.g., limited

rationale for significant changes to performance targets or metrics, the payout of guaranteed bonuses or sizable

retention grants, etc.), and/or other egregious compensation practices.

Although not an exhaustive list, the following issues when weighed together may cause Glass Lewis to

recommend voting against a say-on-pay vote:

• Inappropriate or outsized self-selected peer groups and/or benchmarking issues such as compensation

targets set well above the median without adequate justification;

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• Egregious or excessive bonuses, equity awards or severance payments, including golden handshakes and

golden parachutes;

• Insufficient response to low shareholder support;

• Problematic contractual payments, such as guaranteed bonuses;

• Insufficiently challenging performance targets and/or high potential payout opportunities;

• Performance targets lowered without justification;

• Discretionary bonuses paid when short- or long-term incentive plan targets were not met;

• High executive pay relative to peers that is not justified by outstanding company performance; and

• The terms of the long-term incentive plans are inappropriate (please see “Long-Term Incentives”).

The aforementioned issues may also influence Glass Lewis’ assessment of the structure of a company’s

compensation program. We evaluate structure on a “Good, Fair, Poor” rating scale whereby a “Good” rating

represents a compensation program with little to no concerns, a “Fair” rating represents a compensation

program with some concerns and a “Poor” rating represents a compensation program that deviates significantly

from best practice or contains one or more egregious compensation practices.

We believe that it is important for companies to provide investors with clear and complete disclosure of all the

significant terms of compensation arrangements. Similar to structure, we evaluate disclosure on a “Good, Fair,

Poor” rating scale whereby a “Good” rating represents a thorough discussion of all elements of compensation, a

“Fair” rating represents an adequate discussion of all or most elements of compensation and a “Poor” rating

represents an incomplete or absent discussion of compensation. In instances where a company has simply failed

to provide sufficient disclosure of its policies, we may recommend shareholders vote against this proposal solely

on this basis, regardless of the appropriateness of compensation levels.

In general, most companies will fall within the “Fair” range for both structure and disclosure, and Glass Lewis

largely uses the “Good” and “Poor” ratings to highlight outliers.

Where we identify egregious compensation practices, we may also recommend voting against the compensation

committee based on the practices or actions of its members during the year. Such practices may include:

approving large one-off payments, the inappropriate, unjustified use of discretion, or sustained poor pay for

performance practices. (Refer to the section on "Compensation Committee Performance" for more

information.)

Company Responsiveness

When companies receive a significant level of shareholder opposition to a say-on-pay proposal, which occurs

when there is more than 20% opposition to the proposal, we believe the board should demonstrate a

commensurate level of engagement and responsiveness to the concerns behind the disapproval, with a

particular focus on responding to shareholder feedback. When assessing the level of opposition to say-on-pay

proposals, we may further examine the level of opposition among disinterested shareholders as an independent

group. While we recognize that sweeping changes cannot be made to a compensation program without due

consideration, and that often a majority of shareholders may have voted in favor of the proposal, given that the

average approval rate for say-on-pay proposals is about 90%, we believe the compensation committee should

provide some level of response to a significant vote against. In general, our expectations regarding the minimum

appropriate levels of responsiveness will correspond with the level of shareholder opposition, as expressed both

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through the magnitude of opposition in a single year, and through the persistence of shareholder disapproval

over time.

Responses we consider appropriate include engaging with large shareholders, especially dissenting

shareholders, to identify their concerns, and, where reasonable, implementing changes and/or making

commitments that directly address those concerns within the company’s compensation program. In cases where

particularly egregious pay decisions caused the say on pay proposal to fail, Glass Lewis will closely consider

whether any changes were made directly relating to the pay decision that may address structural concerns that

shareholders have. In the absence of any evidence in the disclosure that the board is actively engaging

shareholders on these issues and responding accordingly, we may recommend holding compensation

committee members accountable for failing to adequately respond to shareholder opposition. Regarding such

recommendations, careful consideration will be given to the level of shareholder protest and the severity and

history of compensation practices.

Pay for Performance

Glass Lewis believes an integral part of a well-structured compensation package is a successful link between pay

and performance. Our proprietary pay-for-performance model was developed to better evaluate the link

between pay and performance. Generally, compensation and performance are measured against a peer group

of appropriate companies that may overlap, to a certain extent, with a company’s self-disclosed peers. This

quantitative analysis provides a consistent framework and historical context for our clients to determine how

well companies link executive compensation to relative performance. Companies that demonstrate a weaker

link are more likely to receive a negative recommendation; however, other qualitative factors such as overall

incentive structure, significant forthcoming changes to the compensation program or reasonable long-term

payout levels may mitigate our concerns to a certain extent.

While we assign companies a letter grade of A, B, C, D or F based on the alignment between pay and

performance, the grades derived from the Glass Lewis pay-for-performance analysis do not follow the

traditional U.S. school letter grade system. Rather, the grades are generally interpreted as follows:

Grade of A: The company’s percentile rank for pay is significantly less than its percentile rank for performance

Grade of B: The company’s percentile rank for pay is moderately less than its percentile rank for performance

Grade of C: The company’s percentile rank for pay is approximately aligned with its percentile rank for

performance

Grade of D: The company’s percentile rank for pay is higher than its percentile rank for performance

Grade of F: The company’s percentile rank for pay is significantly higher than its percentile rank for performance

For the avoidance of confusion, the above grades encompass the relationship between a company’s percentile

rank for pay and its percentile rank in performance. Separately, a specific comparison between the company’s

executive pay and its peers’ executive pay levels is discussed in the analysis for additional insight into the grade.

Likewise, a specific comparison between the company’s performance and its peers’ performance is reflected in

the analysis for further context. Finally, Glass Lewis’ pay-for-performance analysis is currently unaffected by any

additional disclosure concerning pay versus performance as mandated by an August 2022 SEC rule.

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We also use this analysis to inform our voting decisions on say-on-pay proposals. As such, if a company receives

a “D” or “F” from our proprietary model, we are more likely to recommend that shareholders vote against the

say-on-pay proposal. However, supplemental quantitative factors like realized pay levels may be considered, and

other qualitative factors such as an effective overall incentive structure, the relevance of selected performance

metrics, significant forthcoming enhancements or reasonable long-term payout levels may give us cause to

recommend in favor of a proposal even when we have identified a disconnect between pay and performance.

In determining the peer groups used in our A-F pay-for-performance letter grades, Glass Lewis utilizes a

proprietary methodology that considers both market and industry peers, along with each company’s network of

self-disclosed peers. Each component is considered on a weighted basis and is subject to size-based ranking and

screening. The peer groups used are provided to Glass Lewis by Diligent Intel based on Glass Lewis’ methodology

and using Diligent Intel’s data.

Selecting an appropriate peer group to analyze a company’s compensation program is a subjective

determination, requiring significant judgment and on which there is not a “correct” answer. Since the peer

group used is based on an independent, proprietary technique, it will often differ from the one used by the

company which, in turn, will affect the resulting analyses. While Glass Lewis believes that the independent,

rigorous methodology it uses provides a valuable perspective on the company’s compensation program, the

company’s self-selected peer group is also presented in the Proxy Paper for comparative purposes.

Short-Term Incentives

A short-term bonus or incentive (STI) should be demonstrably tied to performance. Whenever possible, we

believe a mix of corporate and individual performance measures is appropriate. We would normally expect

performance measures for STIs to be based on company-wide or divisional financial measures as well as non-

financial, qualitative or non-formulaic factors such as those related to safety, environmental issues, and

customer satisfaction. While we recognize that companies operating in different sectors or markets may seek to

utilize a wide range of metrics, we expect such measures to be appropriately tied to a company’s business

drivers.

Further, the threshold, target and maximum performance goals and corresponding payout levels that can be

achieved under STI plans should be disclosed. Shareholders should expect stretching performance targets for

the maximum award to be achieved. Any increase in the potential target and maximum award should be clearly

justified to shareholders, as should any decrease in target and maximum performance levels from the previous

year.

Glass Lewis recognizes that disclosure of some measures or performance targets may include commercially

confidential information. Therefore, we believe it may be reasonable to exclude such information in some cases

as long as the company provides sufficient justification for non-disclosure. However, where a short-term bonus

has been paid, companies should disclose the extent to which performance has been achieved against relevant

targets, including disclosure of the actual target achieved.

Where management has received significant short-term incentive payments but overall performance and/or the

shareholder experience over the measurement year prima facie appears to be poor or negative, we believe the

company should provide a clear explanation of why these significant short-term payments were made. We also

believe any significant changes to the program structure should be accompanied by rationalizing disclosure.

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Further, where a company has applied upward discretion, which includes lowering goals mid-year, increasing

calculated payouts or retroactively pro-rating performance periods, we expect a robust discussion of why the

decision was necessary. In addition, we believe that where companies use non-GAAP or bespoke metrics, clear

reconciliations between these figures and GAAP figures in audited financial statement should be provided.

Adjustments to GAAP figures may be considered in Glass Lewis’ assessment of the effectiveness of the incentive

at tying executive pay with performance.

Glass Lewis recognizes the importance of the compensation committee’s judicious and responsible exercise of

discretion over incentive pay outcomes to account for significant, material events that would otherwise be

excluded from performance results of selected metrics of incentive programs. For instance, major litigation

settlement charges may be removed from non-GAAP results before the determination of formulaic incentive

payouts, or health and safety failures may not be reflected in performance results where companies do not

expressly include health and safety metrics in incentive plans; such events may nevertheless be consequential to

corporate performance results, impact the shareholder experience, and, in some cases, may present material

risks. Conversely, certain events may adversely impact formulaic payout results despite being outside

executives' control. We believe that companies should provide thorough discussion of how such events were

considered in the committee’s decisions to exercise discretion or refrain from applying discretion over incentive

pay outcomes. The inclusion of this disclosure may be helpful when we consider concerns around the exercise or

absence of committee discretion.

We do not generally recommend against a pay program due to the use of a non-formulaic plan. If a company has

chosen to rely primarily on a subjective assessment or the board’s discretion in determining short-term bonuses,

we believe that the proxy statement should provide a meaningful discussion of the board’s rationale in

determining the bonuses paid as well as a rationale for the use of a non-formulaic mechanism. Particularly

where the aforementioned disclosures are substantial and satisfactory, such a structure will not provoke serious

concern in our analysis on its own. However, in conjunction with other significant issues in a program’s design or

operation, such as a disconnect between pay and performance, the absence of a cap on payouts, or a lack of

performance-based long-term awards, the use of a non-formulaic bonus may help drive a negative

recommendation.

Long-Term Incentives

Glass Lewis recognizes the value of equity-based incentive programs, which are often the primary long-term

incentive for executives. When used appropriately, they can provide a vehicle for linking an executive’s pay to

company performance, thereby aligning their interests with those of shareholders. In addition, equity-based

compensation can be an effective way to attract, retain and motivate key employees.

There are certain elements that Glass Lewis believes are common to most well-structured long-term incentive

(LTI) plans. These include:

• No re-testing or lowering of performance conditions;

• Performance metrics that cannot be easily manipulated by management;

• Two or more performance metrics;

• At least one relative performance metric that compares the company’s performance to a relevant peer

group or index;

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• Performance periods of at least three years;

• Stretching metrics that incentivize executives to strive for outstanding performance while not

encouraging excessive risk-taking;

• Individual award limits expressed as a percentage of base salary; and

• Equity granting practices that are clearly disclosed.

In evaluating long-term incentive grants, Glass Lewis generally believes that at least half of the grant should

consist of performance-based awards, putting a material portion of executive compensation at-risk and

demonstrably linked to the performance of the company. While we will consistently raise concern with

programs that do not meet this criterion, we may refrain from a negative recommendation in the absence of

other significant issues with the program’s design or operation. However, in cases where performance-based

awards are significantly rolled back or eliminated from a company’s long-term incentive plan, such decisions will

generally be viewed negatively outside of exceptional circumstances, and may lead to a recommendation

against the proposal.

As with the short-term incentive, Glass Lewis recognizes the importance of the compensation committee’s

judicious and responsible exercise of discretion over incentive pay outcomes to account for significant events

that would otherwise be excluded from performance results of selected metrics of incentive programs. We

believe that companies should provide thorough discussion of how such events were considered in the

committee’s decisions to exercise discretion or refrain from applying discretion over incentive pay outcomes.

Performance measures should be carefully selected and should relate to the specific business/industry in which

the company operates and, especially, to the key value drivers of the company’s business. As with short-term

incentive plans, the basis for any adjustments to metrics or results should be clearly explained, as should the

company’s judgment on the use of discretion and any significant changes to the performance program structure.

While cognizant of the inherent complexity of certain performance metrics, Glass Lewis generally believes that

measuring a company’s performance with multiple metrics serves to provide a more complete picture of the

company’s performance than a single metric. Further, reliance on just one metric may focus too much

management attention on a single target and is therefore more susceptible to manipulation. When utilized for

relative measurements, external benchmarks such as a sector index or peer group should be disclosed and

transparent. The rationale behind the selection of a specific index or peer group should also be disclosed.

Internal performance benchmarks should also be disclosed and transparent, unless a cogent case for

confidentiality is made and fully explained. Similarly, actual performance and vesting levels for previous grants

earned during the fiscal year should be disclosed.

We also believe shareholders should evaluate the relative success of a company’s compensation programs,

particularly with regard to existing equity-based incentive plans, in linking pay and performance when evaluating

potential changes to LTI plans and determining the impact of additional stock awards. We will therefore review

the company’s pay-for-performance grade (see below for more information) and specifically the proportion of

total compensation that is stock-based.

Grants of Front-Loaded Awards

Many U.S. companies have chosen to provide large grants, usually in the form of equity awards, that are

intended to serve as compensation for multiple years. This practice, often called front-loading, is taken up either

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in the regular course of business or as a response to specific business conditions and with a predetermined

objective. The so-called “mega-grant”, an outsized award to one individual sometimes valued at over $100

million is sometimes but not always provided as a front-loaded award. We believe shareholders should generally

be wary of this approach, and we accordingly weigh these grants with particular scrutiny.

While the use of front-loaded awards is intended to lock-in executive service and incentives, the same rigidity

also raises the risk of effectively tying the hands of the compensation committee. As compared with a more

responsive annual granting schedule program, front-loaded awards may preclude improvements or changes to

reflect evolving business strategies or to respond to other unforeseen factors. Additionally, if structured poorly,

early vesting of such awards may reduce or eliminate the retentive power at great cost to shareholders. The

considerable emphasis on a single grant can place intense pressures on every facet of its design, amplifying any

potential perverse incentives and creating greater room for unintended consequences. In particular, provisions

around changes of control or separations of service must ensure that executives do not receive excessive

payouts that do not reflect shareholder experience or company performance.

We consider a company’s rationale for granting awards under this structure and also expect any front-loaded

awards to include a firm commitment not to grant additional awards for a defined period, as is commonly

associated with this practice. Even when such a commitment is provided, unexpected circumstances may lead

the board to make additional payments or awards for retention purposes, or to incentivize management

towards more realistic goals or a revised strategy. If a company breaks its commitment not to grant further

awards, we may recommend against the pay program unless a convincing rationale is provided. In situations

where the front-loaded award was meant to cover a certain portion of the regular long-term incentive grant for

each year during the covered period, our analysis of the value of the remaining portion of the regular long-term

incentives granted during the period covered by the award will account for the annualized value of the front-

loaded portion, and we expect no supplemental grant be awarded during the vesting period of the front-loaded

portion.

The multiyear nature of these awards generally lends itself to significantly higher compensation figures in the

year of grant than might otherwise be expected. In our qualitative analysis of the grants of front-loaded awards

to executives, Glass Lewis considers the quantum of the award on an annualized basis and may compare this

result to the prior practice and peer data, among other benchmarks. Additionally, for awards that are granted in

the form of equity, Glass Lewis may consider the total potential dilutive effect of such award on shareholders.

Linking Executive Pay to Environmental and Social Criteria

Glass Lewis believes that explicit environmental and/or social (E&S) criteria in executive incentive plans, when

used appropriately, can serve to provide both executives and shareholders a clear line of sight into a company’s

ESG strategy, ambitions, and targets. Although we are strongly supportive of companies’ incorporation of

material E&S risks and opportunities in their long-term strategic planning, we believe that the inclusion of E&S

metrics in compensation programs should be predicated on each company’s unique circumstances. In order to

establish a meaningful link between pay and performance, companies must consider factors including their

industry, size, risk profile, maturity, performance, financial condition, and any other relevant internal or external

factors.

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When a company is introducing E&S criteria into executive incentive plans, we believe it is important that

companies provide shareholders with sufficient disclosure to allow them to understand how these criteria align

with its strategy. Additionally, Glass Lewis recognizes that there may be situations where certain E&S

performance criteria are reasonably viewed as prerequisites for executive performance, as opposed to

behaviors and conditions that need to be incentivized. For example, we believe that shareholders should

interrogate the use of metrics that award executives for ethical behavior or compliance with policies and

regulations. It is our view that companies should provide shareholders with disclosures that clearly lay out the

rationale for selecting specific E&S metrics, the target-setting process, and corresponding payout opportunities.

Further, particularly in the case of qualitative metrics, we believe that shareholders should be provided with a

clear understanding of the basis on which the criteria will be assessed. Where quantitative targets have been

set, we believe that shareholders are best served when these are disclosed on an ex-ante basis, or the board

should outline why it believes it is unable to do so.

While we believe that companies should generally set long-term targets for their environmental and social

ambitions, we are mindful that not all compensation schemes lend themselves to the inclusion of E&S metrics.

We also are of the view that companies should retain flexibility in not only choosing to incorporate E&S metrics

in their compensation plans, but also in the placement of these metrics. For example, some companies may

resolve that including E&S criteria in the annual bonus may help to incentivize the achievement of short-term

milestones and allow for more maneuverability in strategic adjustments to long-term goals. Other companies

may determine that their long-term sustainability targets are best achieved by incentivizing executives through

metrics included in their long-term incentive plans.

One-Time Awards

Glass Lewis believes shareholders should generally be wary of awards granted outside of the standard incentive

schemes, as such awards have the potential to undermine the integrity of a company’s regular incentive plans or

the link between pay and performance, or both. We generally believe that if the existing incentive programs fail

to provide adequate incentives to executives, companies should redesign their compensation programs rather

than make additional grants.

However, we recognize that in certain circumstances, additional incentives may be appropriate. In these cases,

companies should provide a thorough description of the awards, including a cogent and convincing explanation

of their necessity and why existing awards do not provide sufficient motivation and a discussion of how the

quantum of the award and its structure were determined. Further, such awards should be tied to future service

and performance whenever possible.

Additionally, we believe companies making supplemental or one-time awards should also describe if and how

the regular compensation arrangements will be affected by these additional grants. In reviewing a company’s

use of supplemental awards, Glass Lewis will evaluate the terms and size of the grants in the context of the

company’s overall incentive strategy and granting practices, as well as the current operating environment.

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Contractual Payments and Arrangements

Beyond the quantum of contractual payments, Glass Lewis will also consider the design of any entitlements.

Certain executive employment terms may help to drive a negative recommendation, including, but not limited

to:

• Excessively broad change in control triggers;

• Inappropriate severance entitlements;

• Inadequately explained or excessive sign-on arrangements;

• Guaranteed bonuses (especially as a multiyear occurrence); and

• Failure to address any concerning practices in amended employment agreements.

In general, we are wary of terms that are excessively restrictive in favor of the executive, or that could

potentially incentivize behaviors that are not in a company’s best interest.

Sign-on Awards and Severance Benefits

We acknowledge that there may be certain costs associated with transitions at the executive level. In evaluating

the size of severance and sign-on arrangements, we may consider the executive’s regular target compensation

level, or the sums paid to other executives (including the recipient’s predecessor, where applicable) in

evaluating the appropriateness of such an arrangement.

We believe sign-on arrangements should be clearly disclosed and accompanied by a meaningful explanation of

the payments and the process by which the amounts were reached. Further, the details of and basis for any

“make-whole” payments (paid as compensation for awards forfeited from a previous employer) should be

provided.

With respect to severance, we believe companies should abide by predetermined payouts in most

circumstances. While in limited circumstances some deviations may not be inappropriate, we believe

shareholders should be provided with a meaningful explanation of any additional or increased benefits agreed

upon outside of regular arrangements. However, where Glass Lewis determines that such predetermined

payouts are particularly problematic or unfavorable to shareholders, we may consider the execution of such

payments in a negative recommendation for the advisory vote on executive compensation.

In the U.S. market, most companies maintain severance entitlements based on a multiple of salary and, in many

cases, bonus. In almost all instances we see, the relevant multiple is three or less, even in the case of a change in

control. We believe the basis and total value of severance should be reasonable and should not exceed the

upper limit of general market practice. We consider the inclusion of long-term incentives in cash severance

calculations to be inappropriate, particularly given the commonality of accelerated vesting and the proportional

weight of long-term incentives as a component of total pay. Additional considerations, however, will be

accounted for when reviewing atypically structured compensation approaches.

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Change in Control

Glass Lewis considers double-trigger change in control arrangements, which require both a change in control

and termination or constructive termination, to be best practice. Any arrangement that is not explicitly double-

trigger may be considered a single-trigger or modified single-trigger arrangement.

Further, we believe that excessively broad definitions of change in control are potentially problematic as they

may lead to situations where executives receive additional compensation where no meaningful change in status

or duties has occurred.

Excise Tax Gross-ups

Among other entitlements, Glass Lewis is strongly opposed to excise tax gross-ups related to IRC § 4999 and

their expansion, especially where no consideration is given to the safe harbor limit. We believe that under no

normal circumstance is the inclusion of excise tax gross-up provisions in new agreements or the addition of such

provisions to amended agreements acceptable. In consideration of the fact that minor increases in change-in-

control payments can lead to disproportionately large excise taxes, the potential negative impact of tax gross-

ups far outweighs any retentive benefit.

Depending on the circumstances, the addition of new gross-ups around this excise tax may lead to negative

recommendations for a company’s say-on-pay proposal, the chair of the compensation committee, or the entire

committee, particularly in cases where a company had committed not to provide any such entitlements in the

future. For situations in which the addition of new excise tax gross ups will be provided in connection with a

specific change-in-control transaction, this policy may be applied to the say-on-pay proposal, the golden

parachute proposal and recommendations related to the compensation committee for all involved corporate

parties, as appropriate.

Amended Employment Agreements

Any contractual arrangements providing for problematic pay practices which are not addressed in materially

amended employment agreements will potentially be viewed by Glass Lewis as a missed opportunity on the part

of the company to align its policies with current best practices. Such problematic pay practices include, but are

not limited to, excessive change in control entitlements, modified single-trigger change in control entitlements,

excise tax gross-ups, and multi-year guaranteed awards.

Recoupment Provisions (Clawbacks)

On October 26, 2022, the SEC adopted Rule 10D-1 under the Securities Exchange Act of 1934. The rule mandates

national securities exchanges and associations to promulgate new listing standards requiring companies to

maintain recoupment policies (“clawback provisions”). While the final rules will be effective 60 days after the

date of publication in the federal register, listing standards may be effective as late as one year following such

publication. Affected companies are provided with another 60 days following the listing standards’ effective

date to comply.

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Despite the above timeline, Glass Lewis believes in the importance of such risk-mitigating provisions and their

alignment with shareholder interests. Whether or not a company is affected by Rule 10D-1, during the

intervening time between the final rule’s announcement and the effective date of listing standards, we believe it

is prudent for boards to adopt detailed variable compensation recoupment policies that, at a minimum, provide

companies the ability to recover compensation from former and current named executive officers in the event

of overpayment due to erroneous data that triggered an accounting restatement. For companies that will be

subject to the new listing requirements and are yet to adopt clawback policies that exceed the standards set

forth by Section 304 of the Sarbanes-Oxley Act, providing detailed disclosure in the proxy statement evidencing

the board’s proactive effort to ensure that the company will be in compliance may serve to mitigate concerns.

Notwithstanding the new rules, we are increasingly focusing attention on the specific terms of recoupment

policies beyond whether a company maintains a clawback that simply satisfies the minimum legal requirements.

We believe that clawbacks should be triggered, at a minimum, in the event of a restatement of financial results

or similar revision of performance indicators upon which incentive awards were based. Such policies allow the

board to review all performance-related bonuses and awards made to senior executives during a specified

period and, to the extent feasible, allow the company to recoup such incentive pay where appropriate.

However, some recoupment policies empower companies to recover compensation without regard to a

restatement, such as those triggered by actions causing reputational harm. These may inform our overall view of

the compensation program in future especially as market practice continues to evolve around expanded

clawback authority.

Hedging of Stock

Glass Lewis believes that the hedging of shares by executives in the shares of the companies where they are

employed severs the alignment of interests of the executive with shareholders. We believe companies should

adopt strict policies to prohibit executives from hedging the economic risk associated with their share ownership

in the company.

Pledging of Stock

Glass Lewis believes that shareholders should examine the facts and circumstances of each company rather than

apply a one-size-fits-all policy regarding employee stock pledging. Glass Lewis believes that shareholders benefit

when employees, particularly senior executives, have meaningful financial interest in the success of the

company under their management, and therefore we recognize the benefits of measures designed to encourage

employees to both buy shares out of their own pocket and to retain shares they have been granted; blanket

policies prohibiting stock pledging may discourage executives and employees from doing either.

However, we also recognize that the pledging of shares can present a risk that, depending on a host of factors,

an executive with significant pledged shares and limited other assets may have an incentive to take steps to

avoid a forced sale of shares in the face of a rapid stock price decline. Therefore, to avoid substantial losses from

a forced sale to meet the terms of the loan, the executive may have an incentive to boost the stock price in the

short term in a manner that is unsustainable, thus hurting shareholders in the long-term. We also recognize

concerns regarding pledging may not apply to less senior employees, given the latter group’s significantly more

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limited influence over a company’s stock price. Therefore, we believe that the issue of pledging shares should be

reviewed in that context, as should policies that distinguish between the two groups.

Glass Lewis believes that the benefits of stock ownership by executives and employees may outweigh the risks

of stock pledging, depending on many factors. As such, Glass Lewis reviews all relevant factors in evaluating

proposed policies, limitations and prohibitions on pledging stock, including:

• The number of shares pledged;

• The percentage executives’ pledged shares are of outstanding shares;

• The percentage executives’ pledged shares are of each executive’s shares and total assets;

• Whether the pledged shares were purchased by the employee or granted by the company;

• Whether there are different policies for purchased and granted shares;

• Whether the granted shares were time-based or performance-based;

• The overall governance profile of the company;

• The volatility of the company’s stock (in order to determine the likelihood of a sudden stock price drop);

• The nature and cyclicality, if applicable, of the company’s industry;

• The participation and eligibility of executives and employees in pledging;

• The company’s current policies regarding pledging and any waiver from these policies for employees

and executives; and

• Disclosure of the extent of any pledging, particularly among senior executives.

Compensation Consultant Independence

As mandated by Section 952 of the Dodd-Frank Act, as of January 11, 2013, the SEC approved listing

requirements for both the NYSE and NASDAQ which require compensation committees to consider six factors

(https://www.sec.gov/rules/final/2012/33-9330.pdf, p.31-32) in assessing compensation advisor independence.

According to the SEC, “no one factor should be viewed as a determinative factor.” Glass Lewis believes this six-

factor assessment is an important process for every compensation committee to undertake but believes

companies employing a consultant for board compensation, consulting and other corporate services should

provide clear disclosure beyond just a reference to examining the six points, in order to allow shareholders to

review the specific aspects of the various consultant relationships.

We believe compensation consultants are engaged to provide objective, disinterested, expert advice to the

compensation committee. When the consultant or its affiliates receive substantial income from providing other

services to the company, we believe the potential for a conflict of interest arises and the independence of the

consultant may be jeopardized. Therefore, Glass Lewis will, when relevant, note the potential for a conflict of

interest when the fees paid to the advisor or its affiliates for other services exceeds those paid for compensation

consulting.

CEO Pay Ratio

As mandated by Section 953(b) of the Dodd-Frank Wall Street Consumer and Protection Act, beginning in 2018,

issuers will be required to disclose the median annual total compensation of all employees except the CEO, the

total annual compensation of the CEO or equivalent position, and the ratio between the two amounts. Glass

Lewis will display the pay ratio as a data point in our Proxy Papers, as available. While we recognize that the pay

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ratio has the potential to provide additional insight when assessing a company’s pay practices, at this time it will

not be a determinative factor in our voting recommendations.

Frequency of Say-on-Pay

The Dodd-Frank Act also requires companies to allow shareholders a non-binding vote on the frequency of say-

on-pay votes (i.e., every one, two or three years). Additionally, Dodd-Frank requires companies to hold such

votes on the frequency of say-on-pay votes at least once every six years.

We believe companies should submit say-on-pay votes to shareholders every year. We believe that the time and

financial burdens to a company with regard to an annual vote are relatively small and incremental and are

outweighed by the benefits to shareholders through more frequent accountability. Implementing biannual or

triennial votes on executive compensation limits shareholders’ ability to hold the board accountable for its

compensation practices through means other than voting against the compensation committee. Unless a

company provides a compelling rationale or unique circumstances for say-on-pay votes less frequent than

annually, we will generally recommend that shareholders support annual votes on compensation.

Vote on Golden Parachute Arrangements

The Dodd-Frank Act also requires companies to provide shareholders with a separate non-binding vote on

approval of golden parachute compensation arrangements in connection with certain change-in-control

transactions. However, if the golden parachute arrangements have previously been subject to a say-on-pay vote

which shareholders approved, then this required vote is waived.

Glass Lewis believes the narrative and tabular disclosure of golden parachute arrangements benefits all

shareholders. Glass Lewis analyzes each golden parachute arrangement on a case-by-case basis, taking into

account, among other items: the nature of the change-in-control transaction, the ultimate value of the

payments particularly compared to the value of the transaction, any excise tax gross-up obligations, the tenure

and position of the executives in question before and after the transaction, any new or amended employment

agreements entered into in connection with the transaction, and the type of triggers involved (i.e., single vs.

double). In cases where new problematic features, such as excise tax gross-up obligations, are introduced in a

golden parachute proposal, such features may contribute to a negative recommendation not only for the golden

parachute proposal under review, but for the next say-on-pay proposal of any involved corporate parties, as well

as recommendations against their compensation committee as appropriate.

Equity-Based Compensation Plan Proposals

We believe that equity compensation awards, when not abused, are useful for retaining employees and

providing an incentive for them to act in a way that will improve company performance. Glass Lewis recognizes

that equity-based compensation plans are critical components of a company’s overall compensation program,

and we analyze such plans accordingly based on both quantitative and qualitative factors.

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Our quantitative analysis assesses the plan’s cost and the company’s pace of granting utilizing a number of

different analyses, comparing the program with absolute limits we believe are key to equity value creation and

with a carefully chosen peer group. In general, our model seeks to determine whether the proposed plan is

either absolutely excessive or is more than one standard deviation away from the average plan for the peer

group on a range of criteria, including dilution to shareholders and the projected annual cost relative to the

company’s financial performance. Each of the analyses (and their constituent parts) is weighted and the plan is

scored in accordance with that weight.

We compare the program’s expected annual expense with the business’s operating metrics to help determine

whether the plan is excessive in light of company performance. We also compare the plan’s expected annual

cost to the enterprise value of the firm rather than to market capitalization because the employees, managers

and directors of the firm contribute to the creation of enterprise value but not necessarily market capitalization

(the biggest difference is seen where cash represents the vast majority of market capitalization). Finally, we do

not rely exclusively on relative comparisons with averages because, in addition to creeping averages serving to

inflate compensation, we believe that some absolute limits are warranted.

We then consider qualitative aspects of the plan such as plan administration, the method and terms of exercise,

repricing history, express or implied rights to reprice, and the presence of evergreen provisions. We also closely

review the choice and use of, and difficulty in meeting, the awards’ performance metrics and targets, if any. We

believe significant changes to the terms of a plan should be explained for shareholders and clearly indicated.

Other factors such as a company’s size and operating environment may also be relevant in assessing the severity

of concerns or the benefits of certain changes. Finally, we may consider a company’s executive compensation

practices in certain situations, as applicable.

We evaluate equity plans based on certain overarching principles:

• Companies should seek more shares only when needed;

• Requested share amounts or share reserves should be conservative in size so that companies must seek

shareholder approval every three to four years (or more frequently);

• If a plan is relatively expensive, it should not grant options solely to senior executives and board

members;

• Dilution of annual net share count or voting power, along with the “overhang” of incentive plans, should

be limited;

• Annual cost of the plan (especially if not shown on the income statement) should be reasonable as a

percentage of financial results and should be in line with the peer group;

• The expected annual cost of the plan should be proportional to the business’s value;

• The intrinsic value that option grantees received in the past should be reasonable compared with the

business’s financial results;

• Plans should not permit re-pricing of stock options;

• Plans should not contain excessively liberal administrative or payment terms;

• Plans should not count shares in ways that understate the potential dilution, or cost, to common

shareholders. This refers to “inverse” full-value award multipliers;

• Selected performance metrics should be challenging and appropriate, and should be subject to relative

performance measurements; and

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• Stock grants should be subject to minimum vesting and/or holding periods sufficient to ensure

sustainable performance and promote retention.

Option Exchanges and Repricing

Glass Lewis is generally opposed to the repricing of employee and director options regardless of how it is

accomplished. Employees should have some downside risk in their equity-based compensation program and

repricing eliminates any such risk. As shareholders have substantial risk in owning stock, we believe that the

equity compensation of employees and directors should be similarly situated to align their interests with those

of shareholders. We believe this will facilitate appropriate risk- and opportunity-taking for the company by

employees.

We are concerned that option grantees who believe they will be “rescued” from underwater options will be

more inclined to take unjustifiable risks. Moreover, a predictable pattern of repricing or exchanges substantially

alters a stock option’s value because options that will practically never expire deeply out of the money are

worth far more than options that carry a risk of expiration.

In short, repricings and option exchange programs change the bargain between shareholders and employees

after the bargain has been struck.

There is one circumstance in which a repricing or option exchange program may be acceptable: if

macroeconomic or industry trends, rather than specific company issues, cause a stock’s value to decline

dramatically and the repricing is necessary to motivate and retain employees. In viewing the company’s stock

decline as part of a larger trend, we would expect the impact to approximately reflect the market or industry

price decline in terms of timing and magnitude. In this circumstance, we think it fair to conclude that option

grantees may be suffering from a risk that was not foreseeable when the original “bargain” was struck. In such a

scenario, we may opt to support a repricing or option exchange program only if sufficient conditions are met.

We are largely concerned with the inclusion of the following features:

• Officers and board members cannot participate in the program; and

• The exchange is value-neutral or value-creative to shareholders using very conservative assumptions.

• In our evaluation of the appropriateness of the program design, we also consider the inclusion of the

following features:

• The vesting requirements on exchanged or repriced options are extended beyond one year;

• Shares reserved for options that are reacquired in an option exchange will permanently retire (i.e., will

not be available for future grants) so as to prevent additional shareholder dilution in the future; and

• Management and the board make a cogent case for needing to motivate and retain existing employees,

such as being in a competitive employment market.

Option Backdating, Spring-Loading and Bullet-Dodging

Glass Lewis views option backdating, and the related practices of spring-loading and bullet-dodging, as egregious

actions that warrant holding the appropriate management and board members responsible. These practices are

similar to repricing options and eliminate much of the downside risk inherent in an option grant that is designed

to induce recipients to maximize shareholder return.

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Backdating an option is the act of changing an option’s grant date from the actual grant date to an earlier date

when the market price of the underlying stock was lower, resulting in a lower exercise price for the option. In

past studies, Glass Lewis identified over 270 companies that have disclosed internal or government

investigations into their past stock-option grants.

Spring-loading is granting stock options while in possession of material, positive information that has not been

disclosed publicly. Bullet-dodging is delaying the grants of stock options until after the release of material,

negative information. This can allow option grants to be made at a lower price either before the release of

positive news or following the release of negative news, assuming the stock’s price will move up or down in

response to the information. This raises a concern similar to that of insider trading, or the trading on material

non-public information.

The exercise price for an option is determined on the day of grant, providing the recipient with the same market

risk as an investor who bought shares on that date. However, where options were backdated, the executive or

the board (or the compensation committee) changed the grant date retroactively. The new date may be at or

near the lowest price for the year or period. This would be like allowing an investor to look back and select the

lowest price of the year at which to buy shares.

A 2006 study of option grants made between 1996 and 2005 at 8,000 companies found that option backdating

can be an indication of poor internal controls. The study found that option backdating was more likely to occur

at companies without a majority independent board and with a long-serving CEO; both factors, the study

concluded, were associated with greater CEO influence on the company’s compensation and governance

practices.

Where a company granted backdated options to an executive who is also a director, Glass Lewis will recommend

voting against that executive/director, regardless of who decided to make the award. In addition, Glass Lewis

will recommend voting against those directors who either approved or allowed the backdating. Glass Lewis feels

that executives and directors who either benefited from backdated options or authorized the practice have

failed to act in the best interests of shareholders.

Given the severe tax and legal liabilities to the company from backdating, Glass Lewis will consider

recommending voting against members of the audit committee who served when options were backdated, a

restatement occurs, material weaknesses in internal controls exist and disclosures indicate there was a lack of

documentation. These committee members failed in their responsibility to ensure the integrity of the company’s

financial reports.

When a company has engaged in spring-loading or bullet-dodging, Glass Lewis will consider recommending

voting against the compensation committee members where there has been a pattern of granting options at or

near historic lows. Glass Lewis will also recommend voting against executives serving on the board who

benefited from the spring-loading or bullet-dodging.

Lucian Bebchuk, Yaniv Grinstein and Urs Peyer. “LUCKY CEOs.” November, 2006.

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Director Compensation Plans

Glass Lewis believes that non-employee directors should receive reasonable and appropriate compensation for

the time and effort they spend serving on the board and its committees. However, a balance is required. Fees

should be competitive in order to retain and attract qualified individuals, but excessive fees represent a financial

cost to the company and potentially compromise the objectivity and independence of non-employee directors.

We will consider recommending support for compensation plans that include option grants or other equity-

based awards that help to align the interests of outside directors with those of shareholders. However, to

ensure directors are not incentivized in the same manner as executives but rather serve as a check on imprudent

risk-taking in executive compensation plan design, equity grants to directors should not be performance-based.

Where an equity plan exclusively or primarily covers non-employee directors as participants, we do not believe

that the plan should provide for performance-based awards in any capacity.

When non-employee director equity grants are covered by the same equity plan that applies to a company’s

broader employee base, we will use our proprietary model and analyst review of this model to guide our voting

recommendations. If such a plan broadly allows for performance-based awards to directors or explicitly provides

for such grants, we may recommend against the overall plan on this basis, particularly if the company has

granted performance-based awards to directors in past.

Employee Stock Purchase Plans

Glass Lewis believes that employee stock purchase plans (ESPPs) can provide employees with a sense of

ownership in their company and help strengthen the alignment between the interests of employees and

shareholders. We evaluate ESPPs by assessing the expected discount, purchase period, expected purchase

activity (if previous activity has been disclosed) and whether the plan has a “lookback” feature. Except for the

most extreme cases, Glass Lewis will generally support these plans given the regulatory purchase limit of

$25,000 per employee per year, which we believe is reasonable. We also look at the number of shares

requested to see if a ESPP will significantly contribute to overall shareholder dilution or if shareholders will not

have a chance to approve the program for an excessive period of time. As such, we will generally recommend

against ESPPs that contain “evergreen” provisions that automatically increase the number of shares available

under the ESPP each year.

Executive Compensation Tax Deductibility —

Amendment to IRC 162(M)

The “Tax Cut and Jobs Act” had significant implications on Section 162(m) of the Internal Revenue Code, a

provision that allowed companies to deduct compensation in excess of $1 million for the CEO and the next three

most highly compensated executive officers, excluding the CFO, if the compensation is performance-based and

is paid under shareholder-approved plans. Glass Lewis does not generally view amendments to equity plans and

changes to compensation programs in response to the elimination of tax deductions under 162(m) as

problematic. This specifically holds true if such modifications contribute to the maintenance of a sound

performance-based compensation program.

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As grandfathered contracts may continue to be eligible for tax deductions under the transition rule for Section

162(m), companies may therefore submit incentive plans for shareholder approval to take of advantage of the

tax deductibility afforded under 162(m) for certain types of compensation.

We believe the best practice for companies is to provide robust disclosure to shareholders so that they can

make fully informed judgments about the reasonableness of the proposed compensation plan. To allow for

meaningful shareholder review, we prefer that disclosure should include specific performance metrics, a

maximum award pool, and a maximum award amount per employee. We also believe it is important to analyze

the estimated grants to see if they are reasonable and in line with the company’s peers.

We typically recommend voting against a 162(m) proposal where: (i) a company fails to provide at least a list of

performance targets; (ii) a company fails to provide one of either a total maximum or an individual maximum; or

(iii) the proposed plan or individual maximum award limit is excessive when compared with the plans of the

company’s peers.

The company’s record of aligning pay with performance (as evaluated using our proprietary pay-for-

performance model) also plays a role in our recommendation. Where a company has a record of setting

reasonable pay relative to business performance, we generally recommend voting in favor of a plan even if the

plan caps seem large relative to peers because we recognize the value in special pay arrangements for continued

exceptional performance.

As with all other issues we review, our goal is to provide consistent but contextual advice given the specifics of

the company and ongoing performance. Overall, we recognize that it is generally not in shareholders’ best

interests to vote against such a plan and forgo the potential tax benefit since shareholder rejection of such plans

will not curtail the awards; it will only prevent the tax deduction associated with them.

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Governance Structure and the

Shareholder Franchise

Anti-Takeover Measures

Poison Pills (Shareholder Rights Plans)

Glass Lewis believes that poison pill plans are not generally in shareholders’ best interests. They can reduce

management accountability by substantially limiting opportunities for corporate takeovers. Rights plans can thus

prevent shareholders from receiving a buy-out premium for their stock. Typically we recommend that

shareholders vote against these plans to protect their financial interests and ensure that they have an

opportunity to consider any offer for their shares, especially those at a premium.

We believe boards should be given wide latitude in directing company activities and in charting the company’s

course. However, on an issue such as this, where the link between the shareholders’ financial interests and their

right to consider and accept buyout offers is substantial, we believe that shareholders should be allowed to vote

on whether they support such a plan’s implementation. This issue is different from other matters that are

typically left to board discretion. Its potential impact on and relation to shareholders is direct and substantial. It

is also an issue in which management interests may be different from those of shareholders; thus, ensuring that

shareholders have a voice is the only way to safeguard their interests.

In certain circumstances, we will support a poison pill that is limited in scope to accomplish a particular

objective, such as the closing of an important merger, or a pill that contains what we believe to be a reasonable

qualifying offer clause. We will consider supporting a poison pill plan if the qualifying offer clause includes each

of the following attributes:

• The form of offer is not required to be an all-cash transaction;

• The offer is not required to remain open for more than 90 business days;

• The offeror is permitted to amend the offer, reduce the offer, or otherwise change the terms;

• There is no fairness opinion requirement; and

• There is a low to no premium requirement.

Where these requirements are met, we typically feel comfortable that shareholders will have the opportunity to

voice their opinion on any legitimate offer.

NOL Poison Pills

Similarly, Glass Lewis may consider supporting a limited poison pill in the event that a company seeks

shareholder approval of a rights plan for the express purpose of preserving Net Operating Losses (NOLs). While

companies with NOLs can generally carry these losses forward to offset future taxable income, Section 382

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of the Internal Revenue Code limits companies’ ability to use NOLs in the event of a “change of ownership.”

this case, a company may adopt or amend a poison pill (NOL pill) in order to prevent an inadvertent change of

ownership by multiple investors purchasing small chunks of stock at the same time, and thereby preserve the

ability to carry the NOLs forward. Often such NOL pills have trigger thresholds much lower than the common

15% or 20% thresholds, with some NOL pill triggers as low as 5%.

Glass Lewis evaluates NOL pills on a strictly case-by-case basis taking into consideration, among other factors,

the value of the NOLs to the company, the likelihood of a change of ownership based on the size of the holding

and the nature of the larger shareholders, the trigger threshold and whether the term of the plan is limited in

duration (i.e., whether it contains a reasonable “sunset” provision) or is subject to periodic board review and/or

shareholder ratification. In many cases, companies will propose the adoption of bylaw amendments specifically

restricting certain share transfers, in addition to proposing the adoption of a NOL pill. In general, if we support

the terms of a particular NOL pill, we will generally support the additional protective amendment in the absence

of significant concerns with the specific terms of that proposal.

Furthermore, we believe that shareholders should be offered the opportunity to vote on any adoption or

renewal of a NOL pill regardless of any potential tax benefit that it offers a company. As such, we will consider

recommending voting against those members of the board who served at the time when an NOL pill was

adopted without shareholder approval within the prior twelve months and where the NOL pill is not subject to

shareholder ratification.

Fair Price Provisions

Fair price provisions, which are rare, require that certain minimum price and procedural requirements be

observed by any party that acquires more than a specified percentage of a corporation’s common stock. The

provision is intended to protect minority shareholder value when an acquirer seeks to accomplish a merger or

other transaction which would eliminate or change the interests of the minority shareholders. The provision is

generally applied against the acquirer unless the takeover is approved by a majority of ”continuing directors”

and holders of a majority, in some cases a supermajority as high as 80%, of the combined voting power of all

stock entitled to vote to alter, amend, or repeal the above provisions.

The effect of a fair price provision is to require approval of any merger or business combination with an

“interested shareholder” by 51% of the voting stock of the company, excluding the shares held by the interested

shareholder. An interested shareholder is generally considered to be a holder of 10% or more of the company’s

outstanding stock, but the trigger can vary.

Generally, provisions are put in place for the ostensible purpose of preventing a back-end merger where the

interested shareholder would be able to pay a lower price for the remaining shares of the company than he or

she paid to gain control. The effect of a fair price provision on shareholders, however, is to limit their ability to

gain a premium for their shares through a partial tender offer or open market acquisition which typically raise

the share price, often significantly. A fair price provision discourages such transactions because of the potential

Section 382 of the Internal Revenue Code refers to a “change of ownership” of more than 50 percentage points by one

or more 5% shareholders within a three-year period. The statute is intended to deter the “trafficking” of net operating

losses.

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costs of seeking shareholder approval and because of the restrictions on purchase price for completing a merger

or other transaction at a later time.

Glass Lewis believes that fair price provisions, while sometimes protecting shareholders from abuse in a

takeover situation, more often act as an impediment to takeovers, potentially limiting gains to shareholders

from a variety of transactions that could significantly increase share price. In some cases, even the independent

directors of the board cannot make exceptions when such exceptions may be in the best interests of

shareholders. Given the existence of state law protections for minority shareholders such as Section 203 of the

Delaware Corporations Code, we believe it is in the best interests of shareholders to remove fair price

provisions.

Quorum Requirements

Glass Lewis believes that a company’s quorum requirement should be set at a level high enough to ensure that a

broad range of shareholders are represented in person or by proxy, but low enough that the company can

transact necessary business. Companies in the U.S. are generally subject to quorum requirements under the

laws of their specific state of incorporation. Additionally, those companies listed on the NASDAQ Stock Market

are required to specify a quorum in their bylaws, provided however that such quorum may not be less than one-

third of outstanding shares. Prior to 2013, the New York Stock Exchange required a quorum of 50% for listed

companies, although this requirement was dropped in recognition of individual state requirements and

potential confusion for issuers. Delaware, for example, required companies to provide for a quorum of no less

than one-third of outstanding shares; otherwise such quorum shall default to a majority.

We generally believe a majority of outstanding shares entitled to vote is an appropriate quorum for the

transaction of business at shareholder meetings. However, should a company seek shareholder approval of a

lower quorum requirement we will generally support a reduced quorum of at least one-third of shares entitled

to vote, either in person or by proxy. When evaluating such proposals, we also consider the specific facts and

circumstances of the company, such as size and shareholder base.

Director and Officer Indemnification

While Glass Lewis strongly believes that directors and officers should be held to the highest standard when

carrying out their duties to shareholders, some protection from liability is reasonable to protect them against

certain suits so that these officers feel comfortable taking measured risks that may benefit shareholders. As

such, we find it appropriate for a company to provide indemnification and/or enroll in liability insurance to cover

its directors and officers so long as the terms of such agreements are reasonable.

Officer Exculpation

In August 2022, the Delaware General Assembly amended Section 102(b)(7) of the Delaware General

Corporation Law (“DGCL”) to authorize corporations to adopt a provision in their certificate of incorporation to

eliminate or limit monetary liability of certain corporate officers for breach of fiduciary duty of care. Previously,

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the DGCL allowed only exculpation of corporate directors from breach of fiduciary duty of care claims if the

corporation’s certificate of incorporation includes an exculpation provision.

The amendment authorizes corporations to provide for exculpation of the following officers: (i) the

corporation’s president, chief executive officer, chief operating officer, chief financial officer, chief legal officer,

controller, treasurer or chief accounting officer, (ii) “named executive officers” identified in the corporation’s

SEC filings, and (iii) individuals who have agreed to be identified as officers of the corporation.

Corporate exculpation provisions under the DGCL only apply to claims for breach of the duty of care, and not to