ISS 2011 DRAFT Policy Updates – Comments Accepted Thru 11/14

ISS 2011 DRAFT Policy Updates – Comments Accepted Thru 11/14

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Well, it is that time of year when ISS becomes a bit of a flirt and shows us a little bit of what its policy updates for the next proxy season might look like (but not all of them).  ISS just posted some of the draft policies its thinking of issuing as final policies to apply to the 2011 proxy season. ISS is asking for comments on these specific draft policies (which I expect won’t be the only policy updates that get issued in November) before November 11, 2010.

The draft 2011 policies out for public comment and ISS’  request for comments can be found HERE.

So what are the US draft Compensation Policies that ISS has out for comment?

  • Management Say on Pay Frequency Vote Proposals
  • Vote on Golden Parachute Proposals

Management Say on Pay Frequency Vote Proposals

  • Basically, ISS is supporting an annual vote frequency for MSOP.
  • But, ISS is asking whether an anuual vote provides the most effective format and what circumstances might warrant a different format.
  • ISS is also asking about what the consequence of failing to follow a shareholder vote in favor of annual MSOP vote frequency and if that should be considered when evaluating the MSOP itself?

Vote on Golden Parachute Proposals

  • ISS will evaluate votes of golden parachutes in accordance with Dodd Frank Act requirements on a CASE-BY-CASE basis.
  • However, consistent with ISS’ problematic pay practices policy the following items could cause ISS to recommend AGAINST the golden parachute proposal:
    • Recently adopted or amended agreements that include excise tax gross-up provisions (since prior annual meeting);
    • Recently adopted or amended agreements that include modified single trigger agreements (since prior annual meeting);
    • Single trigger payments that will happen immediately upon a change in control, including cash payments and such items as the acceleration of performance-based equity despite failure to achieve performance measures;
    • Single-trigger vesting of equity based on a definition of change in control that requires only shareholder approval of the transaction (rather than consummation);
    • Potentially excessive severance payments;
    • Recent amendments or other changes that may make packages so attractive as to influence merger agreements that may not be in the best interests of shareholders;
    • In the case of substantial gross-up from pre-existing/grandfathered contract: what triggered the gross-up—option mega-grants at low point in stock price, unusual or outsized payments in cash or equity made or negotiated prior to the merger;
    • The company’s assertion that a proposed transaction is conditioned on shareholder approval of the golden parachute advisory vote.
  • ISS is asking the following questions about this proposed policy:
    • Whether the potential for having disparate recommendations (e.g., FOR a transaction, but AGAINST on the non-binding vote on parachute payments) raises any concerns?
    • Whether the factors listed above are appropriate?
    • Whether the total cost of severance payments serve as a primary or secondary consideration in the evaluation of say-on-golden parachute proposals?
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