Archive March 28, 2011

Fidelity Issues 2011 Proxy Voting Guidelines

Fidelity just issued its 2011 Proxy Voting Guidelines.  As promised, they are a significant departure from past guidelines in the area of equity plan proposals. Where in years past Fidelity looked to dilution as the guiding principle along with assorted other concerns in determining its vote on equity plan proposals, it has now replaced that with 3-year average burn rates:

  • 1.5% for Large Caps—companies in the Russell 1000 Index
  • 2.5% for Small Caps—companies not in the Russell 1000 Index
  • 3.5% for Micro Caps—companies with a market cap under US$300 million

I have not yet had a time to read all the way through them or get answers to some of my questions, i.e., how does Fidelity define “burn rate.” But given how significant the change is regarding equity plan proposals, I wanted to get this information out ASAP.

Here is a link to the new proxy voting guidelines:


Companies Fighting ISS Negative Vote Recommendations

Several companies have gone on the offensive this year when ISS issued negative vote recommendations against their proxy proposals, especially in the context of failing the ISS pay-for-performance policy.  These companies include Hewlett Packard, Headwaters, Disney and Tyco International. These companies waited for ISS to issue its negative vote recommendation and then filed additional supplemental proxy materials which were then used in contacting their top shareholders and lobbying for their support of the proposals. In one instance I’m aware of, the one-on-one lobbying had a dramatic impact on the voting and the company prevailed on its say on pay proposal as a result.

Here are links to the supplemental materials that each of these companies filed:

Say on Pay Frequency Recommendations Through March 15, 2011 – Annual SWOP Takes the Lead!


The Say on Pay Frequency Tracking page has been updated to reflect proxies filed through March 15, 2011.

The past week and the first two days of this week, the proxy filings really began to come in. 223 new SOP frequency recommendations were filed.

The tide has finally turned. The Triennial SWOP is no longer the frequency recommended by the most companies having filed their proxies this proxy season (45.0%). Instead, the leading frequency has now become Annual SWOP at 47.1% of all companies filing SWOP recommendations.  However, during this last week or so, six (6) more companies came forward and recommended Biennial SOP frequency. Finally, five (5) more companies came forward with no recommendation on SOP frequency.

Notable companies that filed proxies last week and indicated their preference for say on pay vote frequency:

  • Annual: Abbott Laboratories, Avon Products, Capital One Financial Corporation, Fifth Third Bancorp, General Electric Company, Honeywell International, Humana, J. C. Penney Company, Kellogg Company, Kohl’s Corporation, MetLife, Northern Trust Corporation, The Bank of New York Mellon, The Coca-Cola Company, Waste Management
  • Biennial: Avery Dennison Corporation, VF Corporation
  • Triennial: AT&T, Baxter International, Berkshire Hathaway, Express Scripts, Moody’s Corporation, Spectra Energy Corp, Stanley Black & Decker, U.S. Bancorp, United Parcel Service
  • No Recommendation: Advanced Micro Devices

Here are the current stats:

  • Annual: 281 (47.1%)
  • Biennial: 22 (3.7%)
  • Triennial: 268 (45.0%)
  • No recommendation: 25 (4.2%)

Total companies tracked: 596

SEC’s Corp Fin Issues New Compliance & Disclosure Interpretations

On March 4, 2011, the SEC’s Division of Corporation Finance issued several new Compliance & Disclosure Interpretations (C&DIs) relating to the proxy disclosure rules.  Here is a link to the full C&DIs:

Below are the newly-added C&DIs for Regulation S-K:

Question 116.08

Question: If Item 401(a) and Item 401(e) director information is omitted from a proxy statement pursuant to Instruction 3 of Item 401(a), is this information nevertheless required to be included in a Form 10-K that otherwise provides its Part III information by incorporation by reference from the proxy statement?

Answer: Yes. Instruction 3 of Item 401(a) applies only to proxy statements and information statements. [Mar. 4, 2011]

Question 116.09

Question: Is a company required to include Item 401(e) information about a director’s business experience if the director is appointed by holders of a class of preferred stock?

Answer: Yes. In this situation, the company may either provide the same information about this director as it would directors nominated by the board or disclose that the preferred shareholder has advised the company that the shareholder has appointed this director because of [the Item 401(e) information provided to the company by the shareholder that the company would then include in its filing]. [Mar. 4, 2011]

Question 118.07

Question: In Compensation Discussion and Analysis (CD&A), is a company required to discuss executive compensation, including performance target levels, to be paid in the current year or in future years?

Answer: No. The CD&A covers only compensation “awarded to, earned by, or paid to the named executive officers.” Although Instruction 2 to Item 402(b) provides that the CD&A should also cover actions regarding executive compensation that were taken after the registrant’s last fiscal year’s end, such disclosure requirement is limited to those actions or steps that could “affect a fair understanding of the named executive officer’s compensation for the last fiscal year.” [Mar. 4, 2011]