On April 1, 2020, J.P. Morgan (JPM) released 2020 updates to its Global Proxy Voting and Policy Guidelines. Key updates for the North American region relate to the issues of clawback of compensation, board diversity and advisory vote on say-on-pay. The complete list of policy guidelines are available here. The changes are summarized below.
Uncontested Director Elections
JPM has added the issue of clawback of compensation to its list of reasons to generally withhold votes from directors. As included in its updated policy, JPM will generally withhold votes from the chair of the board, the lead independent director or the chair of the governance committee at a company where the board failed to recoup compensation from employees who departed due to significant misconduct.
JPM has strengthened its current policy position to support diverse director skillsets by adding that as a matter of principle it expects companies to be committed to diversity and inclusiveness. Although it didn't provide a specific level of diversity it expects to see, JPM further stipulated that it will use its voting power to bring about change where boards are lagging in gender and ethnic diversity.
Historically, JPM has exhibited a low level of support for board diversity shareholder proposals. JPM supported approximately 8% of the shareholder proposals on the topic of board diversity over the past 3 years1. In light of JPM's updated policy, we expect to see an increase in their support for such proposals.
Advisory Vote on Say-on-Pay
Under its current policy, JPM withholds votes from compensation committee members for failing to respond adequately to a say-on-pay proposal that received less than 60% shareholder support at the previous year's shareholder meeting. JPM now also considers withholding votes from select members of the compensation committee in cases of pay-for-performance misalignment or where performance metrics and targets, used to determine executive payouts, are not aligned with long-term shareholder value.
Recoupment of Bonuses
In another policy update relating to clawback of compensation, JPM changed
its position from case-by-case evaluation to generally support shareholder proposals seeking to recoup unearned incentive bonuses or other incentive payments made to senior executives where fraud, misconduct or negligence significantly contributed to financial restatements. In its updated policy, JPM also added that it will support shareholder proposals seeking to recoup incentive payments where misconduct or poor performance by an individual prior to the payments contributed in whole or in part to the issuance of such payments.
JPM has voted for approximately 9% of the shareholder proposals relating to clawback of incentive payments over the past 3 years2. With JPM changing its position to generally support such shareholder proposals, we can expect to see a big shift in JPM's vote in favor of these proposals.
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1, 2 Source: ISS Corporate Solutions