Institutional Shareholder Services Releases 2013 Draft Policies for Comment | Practical Law

Institutional Shareholder Services Releases 2013 Draft Policies for Comment | Practical Law

Institutional Shareholder Services (ISS) has released certain 2013 draft proxy voting policies for public comment, which include possible changes to its current policies on management say-on-pay proposals and say on golden parachute proposals. The comment period for these draft policies ends on November 9, 2012 (extended from October 31).

Institutional Shareholder Services Releases 2013 Draft Policies for Comment

Practical Law Legal Update 8-521-9240 (Approx. 4 pages)

Institutional Shareholder Services Releases 2013 Draft Policies for Comment

by PLC Employee Benefits & Executive Compensation
Published on 17 Oct 2012USA (National/Federal)
Institutional Shareholder Services (ISS) has released certain 2013 draft proxy voting policies for public comment, which include possible changes to its current policies on management say-on-pay proposals and say on golden parachute proposals. The comment period for these draft policies ends on November 9, 2012 (extended from October 31).
On October 15, 2012, Institutional Shareholder Services (ISS) released certain 2013 draft proxy voting policies for public comment.
The draft voting policies for US companies address:
  • Board response to majority-supported shareholder proposals. ISS seeks to strengthen accountability of directors who fail to respond to shareholder proposals. In its proposed policy, ISS recommends a "vote against" or "withhold" from the entire board (except new nominees, who should be considered "case-by-case") if the board has failed to respond to a shareholder proposal that was supported by a majority of shareholder votes cast in the previous year. The current ISS policy recommends a "vote against" or "withhold" from the entire board (except new nominees, who should be considered "case-by-case") for failure to respond to a shareholder proposal supported by a majority of:
    • outstanding shares in the previous year; or
    • shares cast in the last year and one of the two previous years.
  • Management say-on-pay proposals. There has been much criticism of ISS's peer group selection, which is used in its quantitative performance evaluations and which consists of companies based on the company's Global Industry Classification Standard (GICS) classification, revenue and market capitalization. ISS is considering changing how it develops each company's peer group by also taking into account the GICS industry group of the company's selected peers (subject to size constraints). The draft policy also adds, as a new factor in the qualitative evaluation of pay-for-performance alignment, a comparison of realizable pay to grant date pay. Finally, the draft policy on say-on-pay proposals adds pledging of shares by executive officers and directors as a new factor that may lead to negative recommendations on say-on-pay votes.
  • Say on golden parachute proposals. The draft policy on golden parachute proposals:
    • Includes existing change-in-control arrangements that are maintained with named executive officers. The current policy focuses only on new or extended change-in-control arrangements.
    • More closely scrutinizes multiple legacy problematic features in change-in-control agreements (such as single-trigger or modified-single-trigger cash severance or single-trigger accelerated vesting of unvested equity awards).
    ISS expects this change would result in it recommending against a greater number of golden parachute proposals.
  • Environmental and social non-financial performance compensation-related proposals. Noting that it is becoming more common for companies in certain sectors to incorporate environmental and social non-financial performance metrics into executive compensation, ISS's draft policy recommends "vote case-by-case" on proposals that link executive compensation to non-financial environmental and social performance factors. Currently, the general position of the ISS policy is to "generally vote against" such proposals.
    The draft policy also replaces the listing of specific social and environmental criteria with a general reference to "sustainability criteria," clarifying that this refers to social and environmental issues.
The comment period for these policies ends on November 9, 2012 (extended from October 31). The complete policies are located on the ISS website, which provides information on how to submit comments.
For more information on proxy advisory firms, see Practice Note, Developing Relationships with Proxy Advisory Firms.