Institutional Shareholder Services Releases 2012 Updates to its Proxy Voting Guidelines | Practical Law

Institutional Shareholder Services Releases 2012 Updates to its Proxy Voting Guidelines | Practical Law

On November 17, 2011, Institutional Shareholder Services (ISS) published its 2012 updates to its proxy voting guidelines.

Institutional Shareholder Services Releases 2012 Updates to its Proxy Voting Guidelines

by PLC Corporate & Securities and PLC Employee Benefits & Executive Compensation
Published on 17 Nov 2011 • USA (National/Federal)
On November 17, 2011, Institutional Shareholder Services (ISS) published its 2012 updates to its proxy voting guidelines.
On November 17, 2011, Institutional Shareholder Services (ISS) announced updates to its global proxy voting guidelines. The 2012 Corporate Governance Policy Updates change several of ISS's proxy recommendations, including in the following areas:
  • Determining the alignment of CEO pay with company performance. ISS did not change its voting recommendations for say-on-pay votes, but it has adopted a new methodology for analyzing pay-for-performance that provides a more complete view of the relationship between executive pay and company performance over a longer period of time. ISS will consider:
    • the alignment between the company's total stockholder return (TSR) rank and the CEO's total pay rank within a peer group, as measured over one and three years;
    • the multiple of CEO total pay relative to the peer group median; and
    • the alignment between CEO pay and a company's TSR over the prior five years.
    If these alignments appear weak, ISS will conduct further analysis to determine if there are mitigating factors. ISS will provide additional guidance on the new pay-for-performance methodology in December 2011.
  • Board response to earlier say on pay votes. ISS will make case-by-case voting recommendations on compensation committee members and the management say on pay proposal if the company's previous say on pay resolution received less than 70% support. ISS will take into account:
    • the company's response, including compensation actions taken and disclosure of engagement with major investors;
    • whether the compensation issues that contributed to low levels of support raised are recurring or one-time events;
    • the company's ownership structure; and
    • whether resolutions received less than 50% support.
  • Board response to frequency of say on pay advisory vote. ISS will recommend voting against the entire board if it implements a say on pay vote on a less frequent basis than the frequency that received a majority of votes cast at the stockholders' meeting.
  • Proxy access. ISS revised its policy on proxy access to expand the factors that will be examined in its case-by-case evaluations of proxy access proposals. ISS will continue to vote case-by-case on proxy access proposals based on a broader list of company-specific and proposal-specific factors, including:
    • the proposed percentage and duration of ownership thresholds;
    • the maximum proportion of directors that stockholders may nominate each year; and
    • the method of determining which nominations should appear on the ballot if multiple stockholder groups submit nominations.
  • Political spending proposals. ISS changed its policy on reviewing political spending proposals. Instead of a case-by-case review, ISS will generally vote in favor of these proposals, but will consider additional facts and circumstances, including current company disclosure of existing policies and oversight mechanisms for political contributions.
The US updates apply to stockholders' meetings on or after February 1, 2012.
ISS also published its 2012 Europe Corporate Governance Policy Updates and 2012 International Corporate Governance Policy Updates.
For additional information on the guidelines, see ISS's press release and executive summary.