Institutional Shareholder Services Inc. (ISS) has published the
2012 updates to its US and international corporate governance policies. These guidelines are applicable to shareholder meetings held on or after February 1, 2012. Given the attention regulators and legislators have taken in corporate governance issues as of late, the new ISS guidelines for US companies include changes in several important areas.
Heightened Scrutiny for Say on Pay Votes. ISS will conduct a case-by-case analysis of compensation committee members (and, in exceptional cases, the full board) for companies whose 2011 say on pay vote attained less than a strong majority (at least 70% of votes). ISS has indicated that its analysis would include consideration of:
- the company’s response, including engagement with major institutional investors regarding the issues that contributed to the low level of support, specific actions taken to address the issues, and the company’s other recent compensation actions;
- whether the issues raised are recurring or isolated; and
- the company’s ownership structure.
Pay-for-Performance Analysis. In response to harsh criticism of its 2011 say-on-pay analytical framework, ISS has adopted a modified pay-for-performance analysis including both relative peer group alignment and absolute alignment to provide a more robust view of the relationship between executive pay and company performance over a sustained time horizon.
Proxy Access. ISS will make recommendations on a case-by-case basis on any proposal to implement proxy access, taking into account company-specific factors, proposal-specific factors, and the method of determining which nominations appear on the ballot if multiple shareholders submit nominations. The policy does not provide any guidance on what specific terms ISS would view favorably or unfavorably in a proxy access proposal.
This revised proxy access policy only applies to shareholder proposals in the area of proxy access, and does not address what recommendation ISS might make regarding a management proposal asking
shareholders to approve adoption of a proxy access provision.
These new ISS guidelines should be read in conjunction with the October 18, 2011
SEC Staff Legal Bulletin No. 14F which provides clarification and guidance on a number of topics that have led to confusion in recent years among issuers and shareholders participating in the Rule 14a-8 shareholder proposal process. The release gives guidance on including proof of share ownership for beneficial owners, submission of revised proposals, and withdrawal of a proposal submitted by multiple proponents.